Hong Kong: The Contractors' Experience

Chapter Three - Contract Strategies and Risks

Chapter Three Contract Strategies and Risks All construction projects include three organizational elements - the client, the designers and the contractors. Clients as discussed in the last chapter are diverse but are obviously essential to initiate the project and have the power and the finance to make the project happen. Designers include all the professional consultants, engineers , architects and surveyors who create the function, form and specification of the project within its financial limits. Contractors, both main contractor and subcontractors , actually construct the project to the designers' requirements which should in tum reflect the client's needs. It all sounds very straightforward but even on relatively simple projects it is quite complicated and on large complex projects of which Hong Kong has many, the process can be extremely challenging. The most significant element in achieving a successful outcome to a project is the way in which the process outlined above is managed. Project management theory stresses that there is no one best way to organize projects and that the approach adopted should be designed to suit the needs of the particular project. Intrinsically linked to the management approach adopted is the contract strategy chosen for the project, the one determines the other to a large extent. A contract strategy is the contractual arrangements which are made between the client, the designers and the contractors for carrying out the works. The strategy determines the pattern of sharing of financial risks which are always present in construction projects but more of this later. First, the activities which have to be undertaken to produce a completed project. The operational stages Whilst practically all construction projects, whether for civils or building work, are unique, it is possible to categorize the work to be done to produce them into a series of activities. However, the problem with such a list is that the activities appear to be a series of discrete stages whereas in reality they overlap even for the simplest contract strategies and on others they overlap considerably. Nevertheless such a structure is needed for a basic understanding of the nature of the construction process and is shown in Fig. 3.1. Contract Strategies and Risks 55 The inception stage invariably takes place within the client organization as the need for the project emerges and the concept of what is required begins to take shape. This stage has potential for the greatest mistakes to be made as unless the objectives for the project are properly defined the outcome of the project, however well designed or constructed, cannot be successful. Unfortunately design consultants and contractors are not often involved in this stage as it takes place within client organizations. However, those clients which build frequently and hence have in-house professionals should have the advantage of appropriate advice at the right time. Those who do not may not be wise enough to realize that they need advice at this very early stage, even more so than when the design is under way. STAGE A. Inception A B. Feasibility C. Outline Proposals D. Scheme Design E. Tender Documentation F. Tender Preparation G. Tender Action H. Project Planning I. Construction J. Feed-back Fig. 3.1 The stages in a project Time The feasibility stage should include the consultants and ideally the contractor but, depending on the contract strategy, this may not be possible. This stage should test whether the ideas emerging from the inception stage are practicable in terms of functional, technical, financial and time criteria. At this stage the contract strategy and management approach should also be decided. A number of alternative approaches to satisfying the client's needs should be identified and tested. The duration of the inception and feasibility stages can vary enormously. For a private sector development scheme they may be very short if the site is already owned, whereas for public sector projects which often have objectives which are more difficult to define, they may be much longer. For example, the duration for the Hong Kong Convention and Exhibition Centre was over ten years. The outline proposal stage is in essence a further development of the feasibility stage in which the chosen option is subject to more detailed study to further test 56 Hong Kong - The Contractors' Experience its practicability. An approach to the layout, design and construction of the project should emerge during this stage so that further cost studies can be carried out. As mentioned earlier, these stages...