FIDIC Conditions Of Subcontract As A Model For General .
FIDIC conditions of subcontract as a model for general conditions of subcontract inPakistanCitation:Zubair, Muhammad Umer, Gabriel, Hamza Farooq, Thaheem, Muhammad Jamaluddin, Khurshid,Muhammad Bilal and Mubeen, Ammara 2016, FIDIC conditions of subcontract as a model for generalconditions of subcontract in Pakistan, Advances in science, technology and engineering systemsjournal, vol. 1, no. 6, pp. 5-13.DOI: 10.25046/aj010602 2016, Advances in Science, Technology and Engineering SystemsReproduced by Deakin University under the terms of the Creative Commons AttributionShare Alike LicenceDownloaded from Deakin Research Online,Deakin University’s Research RepositoryDeakin University CRICOS Provider Code: 00113B
Advances in Science, Technology and Engineering Systems Journal Vol. 1, No.6, 5-13 (2016)ASTESJwww.astesj.comISSN: 2415-6698FIDIC Conditions of Subcontract as a Model for General Conditions of Subcontract in PakistanMuhammad Umer Zubair*1, Hamza Farooq Gabriel2, Muhamamd Jamaluddin Thaheem1, Muhammad Bilal Khurshid1, AmmaraMubeen21National Institute of Transportation, National University of Sciences and Technology, Pakistan2National Institute of Civil Engineering, National University of Sciences and Technology, PakistanARTICLEINFOArticle history:Received: 21 October, 2016Accepted: 26 November, 2016Online: 25 December, 2016Keywords :General contractorSubcontractGeneral conditionsSubcontract1.ABSTRACTFair allocation of risks in conditions of contract is pivotal for coordination, unhinderedexecution, dispute resolution and maintenance of positive relationship among the partiesexecuting the contract. Pakistani construction industry despite subcontracting a largepercentage of construction projects lacks standard conditions of subcontract and they areprimarily based on the will of the prime contractor that is onerous for the subcontractor.Therefore in order to develop a model for the general conditions of subcontract inPakistan the conditions proposed by Associated General Contractors of California,FIDIC in 1994 and 2011, Construction Industry Development Board Malaysia, AmericanInstitute of Architects and by the Government of Hong Kong were compared to determinethe similarities and differences among them. Afterwards a questionnaire based on thesignificant provisions of these subcontracts was conducted in the construction industry ofPakistan to determine the appropriate conditions for model subcontract. The results of thesurvey were further subjected to discussions with the legal experts. Out of 35 suggestionsmade for the general conditions of subcontract 23 originated from FIDIC in which 20 arerecommended by its 2011’s version. It can therefore be implemented in Pakistan withcertain amendments and additions as proposed in light of conditions of other subcontractsand the results of the survey and discussions with legal experts.IntroductionThe construction industry all over the world is realizing thatan effective risk management can lead to the success of theproject simultaneously achieving the goals laid out by theorganziations. Recent studies have established the fact thateffective risk management carry bright prospects not only forthe contractor in terms of profit but for the owners as wellthrough financial control and timely completion [1-3]. Howeverits implementation has a lot of constraints and hurdles in thefield of construction industry. It is impeded while the project isin the infancy stage i.e. when the contracts are executed amongthe project participants. Construction contracts define the workto be executed by the contractor (or the subcontractor) includingthe desired quality and time for completion, the amount to bepaid to the contractor (mode and timings of payment, anyaddition or reduction to payment), roles and responsibilities ofthe parties and the responsibility of unavoiadable events [4].*Corresponding Author: Muhammad Umer Zubair, National Institute ofTransportation, National University of Sciences and Technology, Pakistan, 923337512765, dx.doi.org/10.25046/aj010602They are the primary tool of risk allocation among the projectparticipants [5]. The risks are bound to occur in the constructionprojects and the only way out is to distribute the risks among theparties that are more capable of bearing them through contracts.They serve as a basic template of defining risks and placing theresponsibility of their management to the stakeholder who is in abetter position to handle them. It establishes a framework thatnominates that which party bears a particular risk [6]. InPakistan however the risks are not fairly allocated in thecontracts.The owner tends to place most of the risks on thecontractor. A similar practice has been reported in MainContractor (MC)-Subcontractor (SC) relationship. Choudhry,Hinze [7] reported that in Pakistan standardized conditions ofcontract are not used by the prime contractor like for examplethose suugested by FIDIC. The owner imposes their ownconditions on the subcontractor that are quiet onerous. Thesituation is quiet alarming owing to the propotion of the totalworks assigned to the subcontracters in the construction industrynow days. It may constitute a very high percentage of the works5
M.U. Zubair et al. / Advances in Science, Technology and Engineering Systems Journal Vol. 1, No. 6, 5-13 (2016)i.e. 70 % [8] or 85% [10]. A similar situation is observed in theconstruction industry of Pakistan where majority of the worksare subcontracted by the main contractor. Actually one of themain reasons of subcontracting the works by the main contractoris the transfer of risks [11]. But here in Pakistan there is anexploitation of the subcontractor by using harsh contractualconditions that transfers majority of the risk to the subcontractor.Therefore the construction industry of Pakistan definitely needsstandard conditions of Subcontract that can be proposed toPakistan Engineering Council (PEC) which governs theEngineering projects in the country so that the subcontractorsperforming works in different provinces can be benefitted. Thebid documents provided to the contractor by the client that asper the Pakistan Engineering Council should include thefollowing documents Instructions to Bidders.Bidding Data.General Conditions of Contract, Part I (GCC).Special Conditions of Contract, Part II (SCC).SpecificationsForm of Bid and Appendices to Bid.Bill of QuantitiesForm of Bid Security.Form of Agreement.Form of Performance Security, Mobilization AdvanceGuarantee, security bond and integrity pact. DrawingsGeneral conditions of contracts are those that apply to alltypes of contracts.They are generally based on the conditionsproposed by PEC that have been formulated in light ofprovisions of FIDIC when it comes to the contract between theowner and the contractor. Particular/Supplementary conditionsare a tool to ammend the clauses of general conditions ofcontract as per the requirement of project. These conditions ofcontract should only be a mean to address the specifics of theproject and the fundamentals of general conditions of contractincluding the risk allocation should not be disturbed [12]. But asmentioned earlier there are no standard conditions proposed byPEC to address the subcontracting. This area necessarily needsfocus so that the subcontractors may not suffer due to theexacting contractual conditions imposed by the main contractor.To deal with this immense issue a comparision of generalconditions of subcontract by various international organizationshas been conducted to propose the appropriate conditions for thegeneral conditions of subcontract in the Pakistani industry. PECcan particularly benefit from this paper as it provides a guidelinefor the formulation of General Conditions of Subcontract. As perauthor’s knowledge no study based on such lines has beenconducted in any part of the world.2.Comparison of subcontractsThe conditions of subcontract prepared by “AssociatedGeneral Contractors of California Long Form StandardSubcontract (AGC)”, FIDIC Conditions of Subcontract forwww.astesj.comWorks of Civil Engineering Construction, 1994” (FIDIC 1994),“The Red Book Subcontract--Conditions of Subcontract forConstruction for Building and Engineering Works, Designed bythe Employer, First Edition 2011” (FIDIC 2011), “Conditions ofSubcontract by Construction Industry Development Board CIDB,Malaysia” (CIDB), “American Institute of Architects A4012007 Standard Agreement between the Contractor andSubcontractor” (AIA) and “The Government of Hong Kongspecial administration region subcontract for building works2000 edition”(HKG) were compared. Being promulgated byinternational organizations these conditions are well balancedand not biased in favor of any particular party.FIDIC 1994 was designed to be used in conjunction withconditions of contract for works of Civil Engineeringconstruction, Fourth Edition 1987. The general conditionconsists of twenty two clauses. Despite of formulation of newedition i.e. FIDIC 2011, the one put forward in 1994 have alsobeen considered in this study. This is primarily due to prevailingpractices of the Pakistani construction industry. Like forexample the request for proposals put forward by NationalHighway Authority, Pakistan (NHA) for the contractors still usesthe Conditions of contract for works of Civil EngineeringConstruction Fourth Edition 1987, by FIDIC. Despite of neweditions this version is still in place and used extensively inPakistan. Therefore the old version has also been considered sothat its applicability can be checked in the construction industryof Pakistan.The new edition i.e. FIDIC 2011 consists of 20 clausesinstead of 22 in the previous one. Many clauses have beenamended and new provisions have been added. For example theolder version did not have any provision where the contractormay proceed to claim any payment from the subcontractor orwhere the contractor is given the right to make a fair decisionregarding their own claim when an agreement is not reachedwith the subcontractor. The new edition places a greaterresponsibility on the subcontractor by making them responsiblefor the works designed by them. The Subcontractor is given theright to suspend the work in case of nonpayment from theContractor in the new edition. The older edition of 1994 givesfifty five days to resolve a dispute after which the issue is passedon to the arbitration process. The new edition refers the issue toSubcontractor’s Dispute Adjudication Board (DAB). If eitherparty serves a notice of dissatisfaction to the other party, twentyeight days are given to reach an amicable solution after whichthe matter proceeds to the arbitration process.CIDB was published in 2006. The model contract presentconditions to be used in the Subcontracts [13]. They weredeveloped owing to the increasing trend of subcontracting in theMalaysian industry in lines with Construction industry Masterplan of their country. Various consultation sessions andworkshops led to finalization of the first draft of the conditionsof contract. It consists of seven clauses in the General conditionsof the contract.6
M.U. Zubair et al. / Advances in Science, Technology and Engineering Systems Journal Vol. 1, No. 6, 5-13 (2016)AIA contracts are extensively used in the constructionindustry particularly the subcontracts which are relativelyinexpensive and widely accepted [14]. The edition of AIA usedin the study replaced A401-1997 which expired in 2009. Thenew edition consists of sixteen articles. HKG was proposed in2000 to be used in conjunction with General Conditions ofContract for Building Works” (1999 Edition). They wereformulated by the development bureau of the Hong Kong specialadministrative region. The organization is responsible for theplanning, management and implementation of public sectorprojects. Their official website provides an open access to all theconstruction contracts promulgated by them. Hence thesubcontract proposed by them can be easily retrieved for use. Alltogether the general conditions consist of 34 provisions. AGCwas proposed by “Associated general contractors of California”,founded in 1920. The organization comprises of more than 1000contractors thereby representing a wide horizon of the industryof California. The organization is one of the largest chapters ofAssociated general contractors of America. The organizationalso provides an open access to the contracts proposed by themon their official website. AGC consists of 7 main clauses. A totalof 52 significant matters have been found to be addressed inthese conditions of subcontract by the internationalorganizations. Some significant provisions have been enlisted inTable1.Table 1: Comparison of subcontractsDescriptionFIDIC 1994FIDIC 2011CIDBAIAHKGAGCEntering intosubcontractN/AN/AN/AWhen called bycontractorN/ARepresentative on siteContractor andsubcontractorWithin 28afterreceiving Letter ofacceptance (LOA)Contractor tion of workWithin 14 days afternotificationN/AN/AN/AN/AN/ASatisfaction of worksN/AN/AN/AN/ASatisfy both MCand architectN/AExtensions of timeand additional costsEvents for which SCis not responsible andsubmits a notice in 14daysN/AEvents for which SC isnot responsible andsubmits a noticeimmediatelyN/AN/AWith the consent ofthe MCIn case ofprovision of noticeof event in 21 daysN/AN/AN/AMain contract willprevailN/AAccess to SC to maincontractGive access exceptprice partGive access exceptprice partN/AN/AGive access exceptprice partN/AInstructions tosubcontractorOnly by MCOnly by MCContractoradministratorOnly by MCOnly by MCN/AClaims by contractorN/AN/AN/AN/AN/ADesign of works bysubcontractorN/AN/AN/AN/AN/AHealth and safetyN/AFair agreement by MCin case of nonagreementResponsible of theworks designed bythemSC responsibleBoth MC and SCSC responsibleN/ASC responsiblePerformance securityShould be provided tothe MC within 28days of LOAShould be provided tothe MC within 28 daysof LOAN/AN/ASecurities shouldbe provided by SCSub Sub contractingNot without theconsent of MCNot without theconsent of MCN/ANot without theconsent of MCNotice prior tobeginning of workN/AFourteen days prior tostartN/AN/ANo need toprovide anysecurity by thesubcontractorThe decision ofarchitect shallprevailN/ANotices to contractorNotices regardingdelays and otherissues should begiven to thecontractorSC to submit within48 days of LOAWithin twenty-onedays after thecontractor becomesaware of issuesN/AN/ANotice should besubmitted withintwenty-one daysof an eventSC to submit within 48days of LOAN/ASubcontractor shouldsubmitMC submits adetailed workschedule to SCN/AMC submits adetailed workschedule to SCSubcontractor shouldsubmitMC submits adetailed workschedule to SCN/ANotices should begiven to thecontractor withinforty-eight hoursof the eventSC should submitPosition of MaincontractSchedule of activitiesProgress reportswww.astesj.comN/AN/AN/A7
M.Umer et al. / Advances in Science, Technology and Engineering Systems Journal Vol. 1, No. 5, 1-10 (2016)Submission of wastemanagement planN/AN/AN/ASC should submitN/AN/ASuspension of workby MCN/AReasons should beprovided to the SCN/AN/AN/AN/AResponse to SC’snoticeN/AWithin 21 daysN/AN/AN/AN/ASC involvement inmeasurement ofworksContractor’s right tomake fair decisionN/AShould be involvedN/AN/AN/AN/AN/AGiven in case of nonagreement onmeasurementsN/AN/AN/AN/AVariationsCan be given by MConlyCan be given by MConlyModify action asinstructed by MCAcceleration of workN/AContractor can giveinstructionContractor can giveinstructionN/AGiven by architectand confirmed byMCN/AN/AStatement forpaymentWithin 7days afterend of each monthAt least 7 days beforeMC’s submissionN/AN/AN/AN/ADetails of Interimpayment certificatesN/AShould be provided toSCN/AShould be providedto SCN/AN/ADelay of paymentsExplanation shouldbe AN/APayment tosubcontractorWithin 70 daysWithin 70 daysWithin 30 daysWithin 7 days ofreceiving paymentsfrom the ownerRetention moneyAt least half shouldbe paid within 35days of handingtaking over. Restshould be paid within7 days of release offinal paymentWithin 84 days ofsubmission of finalpayment certificateAt least half should bepaid within 28 days ofhanding taking over.Rest should be paidwithin 7 days of releaseof final paymentAt least half shouldbe paid withinseven days ofpracticalcompletioncertificate.N/AWithin 7 days ofreceivingpayments from theownerN/AWorks defective,warranty notprovidedWithin 7 days ofreceivingpayments from theownerN/AWithin fifty-six days ofdefects notificationperiod.N/AWithin 7 days ofpayment from theownerN/AN/A28 days after defectsliability certificate isissuedN/AWithin 7 days afterreceipt of security fromthe employerNotice should be givento the SC 14 daysbefore terminationN/AN/AN/AN/AIn case SC does notresolve issue within14 days of noticeby the contractadministratorIf SC does notresolve the issuementioned in thenotice for correctionIf SC does notresolve the issuementioned in thenotice within 7daysIf issue is notresolved within 10daysSuspension of worksby subcontractorN/AIn case of nonpayments by giving anotice twenty-one daysprior to itIn case of nonpayments by givinga notice twenty-onedays prior to itIf the payment is notmade within sevendays of agreed dateN/AN/ATermination ofcontract by SCN/ABy a notice 14 daysprior to intended dateUpon nonpaymentwithin 60 days of duedateN/AN/AInsuranceMC and SC shouldcarry outMC and SC shouldcarry outIn case of nonpayments by givinga notice twenty-onedays prior to itMC and SC shouldcarry outDispute resolutionNo amicablesettlement within 55days of notice thandispute should bepassed on toarbitration process.Subcontract disputeadjudication board willbe formed. In case ofdissatisfaction on itsdecision the matter isdirected to arbitration.Parties should gofor Adjudication. Ifissue still remainsunresolved it can bedirected toarbitration.If issues are notresolved, then partiescan move ahead witharbitration.Final paymentReturn ofperformance securityTermination ofsubcontract by due toSC’s defaultwww.astesj.comSC should carry outSC should carryoutMatters should bedirected to thearchitect. If notresolved than itshould be directedto mediation andarbitration.Carry outnegotiations whichif not successfulthan matter can bedirected toarbitration, ifdesired by theparties.8
M.Umer et al. / Advances in Science, Technology and Engineering Systems Journal Vol. 1, No. 5, 1-10 (2016)3.MethodologyThe provisions of the conditions of subcontract mentionedin Table 1 were developed into a questionnaire with specialemphasis on those clauses in which there is a difference ofopinion. There were certain matters which were addressed in onesubcontract and not found in others. Many conditions werefound similar in all contracts. It was deemed necessary todetermine that whether these clauses developed by internationalagencies fit into the conditions of the construction industry ofPakistan or not. The provisions in the form of multiple choicequestions were first subjected to a pilot survey with contractsmanager and they were asked to check that are the questionsadequate to address the formulation of general conditions ofsubcontract in Pakistan? As per Hill [15] the sample sizerecommended for the pilot survey is between 10 to 30. Basedupon the suggestions of experts a final questionnaire survey todetermine the model provisions for the subcontract wasformulated. The questionnaire consisted of two sections. Thefirst section asked the respondents about their personal details.The respondents were asked to provide information regardingtheir educational background, the type of organization to whichthey belong and their years of experience.In the second section multiple choice questions consisting ofclauses from the subcontracts studied in the earlier part of thestudy and verified by the construc
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