Part One
by Gliceria N. Cademia / Trade and Industry Development Specialist
Export Marketing Bureau – Services Division
Published in Business Mirror
01 August 2017
SIXTY construction-industry players and consultants, along with the Department of Trade and Industry’s Construction Industry Authority of the Philippines-Philippine Overseas Construction Board (DTI CIAP-POCB) and the Services Division of Export Marketing Bureau (EMB), participated in a capacity-building seminar for POCB-registered companies at Emperor Hall, Makati Palace Hotel in Makati City on July 5.
Jocelyn C. Carrasco, acting chief of CIAP-POCB, marked the date as the beginning of a joint cooperation between CIAP-POCB and EMB, which coorganized the seminar to promote and market the Philippine construction industry overseas.
The seminar discussed topics, such as understanding construction contracts for overseas projects, negotiation techniques and possible Outbound Business Matching Missions (OBMM).
Understanding construction contracts for overseas projects
ROLAND G. Rosales, chief legal counsel of Sta. Clara International Corp., discussed the types and forms of construction contracts, and common issues encountered by contractors during project implementation.
He said there are two types of construction contracts: One is the method of project delivery and the other is costing and payment terms. Project delivery includes the building and engineering works being designed by the employer (design-bid-build) and building and engineering works being designed by the contractor (design-build).
There are two subtypes of design-build project delivery: Turnkey contract; and engineering, procurement and construction contract (EPC contract).
A turnkey contract is a contract where the contractor completes a project and turns it over to the owner fully.
He also differentiated the three types of costing/payment terms: 1) cost plus contract; 2) remeasurement contract; and 3) lump sum. Cost plus contract is a kind of construction contract where the contractor is reimbursed by the owner for the actual cost of performing the work, plus additional payment for profit. The additional payment may be a fixed amount agreed upon by the party or a percentage of the total cost. Remeasurement contract, or unit-price contract, is where there is a bill of quantities (BOQ), or estimates of the materials, parts and labor.
During the construction, the actual quantity of work performed by the contractor shall be jointly measured by the contractor and owner and valued at the unit price of price quoted in the BOQ. Lump-sum contract, or fixed-cost contract, is where the contractor is paid based on a fixed cost for the completion of the project. The fixed cost is not dependent of the resources and time spent.
He also cited the verbal and written forms of construction contracts. The written form consists of own forms, standard forms and modified forms. He recommended the standard form as it is aligned with internationally accepted contract form. He said modified form can also be used to suit the specific needs of the parties and the accomplishment of the work.
Rosales also discussed the 6 standard forms of international construction contracts which include those of the International Federation of Consulting (Fidic), Institution of Civil Engineers, New Engineering Contract, The Joint Contract Tribunal, Major Project Form and American Institute of Architects. Those of Fidic are widely used in the international construction industry. The rights, obligations and risk of the contractor and employer are properly balanced. It is flexible to the necessities of the project or the needs of the contractor and employer.
Fidic contracts are either: 1) red book, where conditions of contract for construction of building and engineering works are designed by the employer; 2) silver book for EPC/turnkey projects; 3) yellow book for plant and design build; 4) green book, which is a short form of contract usually used for small-scale projects; and 5) gold book for design, build and operate projects (BOT).
Rosales said the common issues encountered by contractors during project implementation include scope and specifications not being properly defined; the responsibilities of contractor and employer not clearly specified; and accountability not defined for defects in the design, plans and specifications.
To minimize issues on variations, they should either be approved by the employer; or be part of the contract (Turnkey, EPC); and employer approval of the variation, but not the cost.
The parties should also be aware of extension of time (EOT), including failure of the contractor to document the cause of delay, to notify the employer of the cause of delay and impact on the project schedule and responses to claims for EOT. The contractors should document everything and notify the employer every time they encounter delay to prevent the issue on EOT.
The delay in the project schedule is also an issue when the employer fails to reply to a claim for EOT and when it fails to approve a variation. In force-majeure cases, the contractor should identify everything that will be included in the claim for EOT. Rosales emphasized that different countries have different laws. Some use common law and others, civil law like the Philippines.
Outbound business matching mission
MARIA Teresa S. Loring, chief of the Services Division of EMB, said one of the sectors identified in the Philippine Export Development Plan is construction materials which directly complement construction services along with aerospace and other related services.
To be continued