"The quality of the pudding is created before the eating": Onderzoek naar de allocatie van verantwoordelijkheden en risico’s in de contracteringsfase en daaruit voortkomende discussies in de uitvoeringsfase van D&C contracten

Janssen, Tom J.A.P. (2009) "The quality of the pudding is created before the eating": Onderzoek naar de allocatie van verantwoordelijkheden en risico’s in de contracteringsfase en daaruit voortkomende discussies in de uitvoeringsfase van D&C contracten.

Abstract:Contractual discussions within construction industry seem inevitable. Advancing insight, changed circumstances and/or obscurities (vagueness) about the interpretation of contracts are often reasons to start such discussions. In this research “post contractual discussions” and the courses into which they develop are analyzed. Design & Construct projects are the major subjects within this research. The allocation process itself (the way how risks were allocated), how project parties have dealt with uncertainties, the aims to start discussions and how discussions are finally solved are important points of focus. Design & Construct is a relative new method of working. A lot of obscurities exist about “workable” risk allocations in practice because there is a lack of experience with the new contractual arrangements. As a result of these obscurities discussions and renegotiations take place after the closure of contracts. The question “who is liable for undesirable events which have or haven’t been foreseen within the contract?” is often the subject of these discussions. Albeit contract parties aim for sound and comprehensive contracts not everything is to be foreseen. Transaction cost theory and principal-agent theory both provide a framework to analyze how contracting parties deal with these uncertainties. Nine phenomena which embody causes/reasons how discussions come into existence are derived from both theories. These nine phenomena are translated into practical situations. These situations and their contribution to the causes for discussions are verified in five project cases. Further investigation took place in order to verify [1] if these situations do occur, [2] if they contribute to discussions, and [3] the courses into which the discussions have developed within the cases. An important aspect within the analysis of discussions is the shift/transfer of responsibilities. In most of the discussions the reason for this shift/transfer seems to be that none of the contracting parties (principal or agent/provider) wants to bear the responsibility for performing a task or situation. Contracting parties claim not to be liable for consequences which are unforeseen at the moment of contract closure. Subsequently the discussion can evolve into two different courses: [1] The risk or a part of it is transferred from one contracting party to another. Risks are transferred because it often becomes clear that the original allocation does not longer meets the needs of one or both contracting parties during the design or construction phase. An example is the current state of a bridge construction which appears more worse during the construction phase than anticipated before. The agent pointed out he could not have expected this state despite an inspection which he has executed. Subsequently the principal takes over a share of the design responsibility. [2] Another possibility is that, after the discussion, the responsibility stays where it has been during contracting. This situation has been perceived within five discussions divided over the five project cases. In these cases the transfer of responsibilities was no appropriate or effective solution. Solutions for these discussions are to make complementary agreements between contracting parties or financial support provided by the principal. An example is the case in which a principal is to be held responsible for obtaining the permits to reconstruct several constructions but these permits were initially not permitted. During the following discussion the responsibility wasn’t transferred from one party to the other. The effect of the discussion mentioned was the project phasing did not work out as planned and an enormous traffic chaos occurred at the construction site. Finally complementary agreements were made on top of the contractual agreements to recover a workable situation. A conclusion based on the case study results is made about the subject of most post contractual discussions. The subject of most discussions is about the starting point and the activities which have to be completed before the project can start. Furthermore a clear argumentation behind choices for the allocation of risks doesn’t exist in most of the cases. It appears that contracting parties are Afstudeerscriptie | Tom Janssen VI insufficiently aware about the consequences of the originally chosen allocation, even if the allocation is explicitly reviewed (afterwards) or is discussed before contracting. As an example this can lead to a situation where one contracting party bears the risk and financial consequences while another contracting party has the possibilities to directly influence the risk. Because of that the risk bearer becomes vulnerable: one party could aim at the delay of activities as a result of which more space is created for possible additional work or (otherwise) reduction of bonus payments. The conclusion can be drawn that the separation of the parties who ows the task and who bears the risk is undesirable. Discussions during the design or construction phase are also the result of “assumptions” as a result of which the allocation is insufficiently discussed before contracting: · Assumption 1: judgments about control of are too much made by one party The idea behind the allocation is in all cases the same: “the risk has to lie at the party who can control that risk the best of all possible parties”. The principal makes often assumptions to formulate allocations, about the agent’s limitations and possibilities with respect to his abilities to control risks, without discussing them. Those assumptions can be false (appears from case study). · Assumption 2: risks are too easily transferred when there is an information shortage The main problem is that, risks are placed at agents, without also providing the information and means to be able to assess and control them effectively. If agents have to gather information and make assumptions themselves this has enormous consequences for them. The possible results before contracting are: the forcing up of prices, delays in the tender process, incomparable bids because of incomparable starting points; Afterwards: it turns out that the agent can not control the risk whereupon the principal has to support financially. Recommendations The recommendations are related to the discussion of uncertainties (and risks) before contracting and the allocation process in present practice. The expectation is that by implementing these recommendations within future projects discussions possibly can be admitted and solved early. The following principle should prevail: Make sure risks are as much as possible (consistently) allocated in accordance with the philosophy behind the chosen tender and contracting form. The principal has to make an inventory of the risks as a starting point. From that they can take care that risks and their allocation are discussed. In first instance it is important that the principal explicitly names the risks. Next an initial allocation is set up in accordance with the philosophy behind the contracting form and the responsibilities which result from it. Subsequently it should be taken care of that principal and possible agents discuss the risks and their allocation. If the initial allocation is discussed agents are also stimulated to think it over. Therefore the consequences of the allocation become more clear to all parties. Principals as well as agents do have to be able to speak freely, about obscurities and incompleteness’s which they see, during the whole process. When these are admitted timely, solutions can be found before closing contracts. The scope of activities/work and the formulation of requirements and risks deserve special attention within that process. Competitive tender of risks After all risks are discussed the agents determine which price they want to attach to the elements within the contract. They determine a separate sum for the corresponding risks and take that along with the basic price in their tender. This leads perhaps to the invention of smart solutions for the control of risks as a result of which risks can be reduced. In the comparison of proposals risks are taken next to other criteria (like the price of the project elements) within the “EMVI”(economically most profitable tender)-appraisal.
Item Type:Essay (Master)
Faculty:ET: Engineering Technology
Subject:56 civil engineering
Programme:Civil Engineering and Management MSc (60026)
Link to this item:http://purl.utwente.nl/essays/59331
Export this item as:BibTeX
HTML Citation
Reference Manager


Repository Staff Only: item control page