IMPROVING SUBCONTRACT CONDITIONS TOWARDS SUCCESSFUL INFRASTRUCTURE PROJECTS IN GAZA

Transcription

1 MPROVNG SUBCONTRACT CONDTONS TOWARDS SUCCESSFUL NFRASTRUCTURE PROJECTS N GAZA Rebhy El Sheikh Palestinian Water Authority, Gaza Technical Director, MSc Mechanical Engineering ABSTRACT: Amongst the so many criteria considered in the classification of construction firms in Gaza is the managerial capacity of the firm without thorough consideration to the actual manpower that will really perform the works. Almost all of the construction firms in Gaza tend to subcontract the different tasks of a project to smaller firms or workshops where implementation and manufacturing experience is assumed to exist. As soon as a subcontract starts, the project progress and quality becomes mainly dependent on the subcontractor's practical capability and capacity. Finishing of works has been noticed to be greatly dependent on the performance of the subcontractor. n many infrastructure projects actual delay has been noticed to be due to the time consumed by subcontractors to remedy the works according to the main contract specifications and the instructions of the engineer. Rarely commitments of the main contract are applied on the subcontract or miss the mechanism of application due to the local socioeconomic or technical considerations. The available experience and indicators show that upgrading of local technicians to meet the international quality requirements is a key challenge to the parties seeking for sustainable human resources development and capacity building. The analysis of a questionnaire in relation to the role played by subcontractors in the quality and schedule of infrastructure projects which had been filled by a sample of prime contractors indicate negative impacts of subcontractors. KEYWORDS: Subcontracts, Project success, Capacity building PROCEDURES OF CONSTRUCTON FRMS' CLASSFCATON: A national classification committee has been formed to carry out the process of classification of local contractors. The committee includes representatives from the Ministry of Public Works& Housing, Palestinian Contractors Union, Engineering Syndicate, Ministry of Education, Ministry of Planning & nternational Cooperation, Ministry of Local Government, Palestinian Economic Council for Development and Reconstruction and the Palestinian Water Authority. Each construction firm can be classified in one or more of the fields of roads, constructions, electromechanical works, water & Wastewater and public works. n principle the construction firm should be registered with the companies' registrar. Criteria have been set up for the purpose of evaluation of the firms' files. This includes evaluation of the financial & administrative team, the technical team, experience of the firm in a certain field of works, equipment value, capital and the office area. Certain minimum values and requirements are fixed 47

2 for a given classification category of a certain field. The criteria by themselves are strict but usually construction firms find their ways to mislead the classification committee through the submission of false information. The committee conducts monthly sessions of classification where a list of firms is on the agenda for classification. When a decision is made to classify a certain firm, such a firm pays the annual fees to the Palestinian union of contractors and is awarded a certificate of classification. Usually such a certificate will be valid for one year but can be less. The total number of construction firms classified in the different fields as per April, 2003 data is 110 firms. The number of firms used to be increasing in the past few years since some of the firms that worked as subcontractors converted to independent contractors. Currently the total number of firms is almost fixed basically because of the unstable market of materials resulting from the political situation. A break down on the number of firms in each individual field and class is given Table 1. Field 1 st class 2 nd class 3 rd class 4 th class 5 th class Roads Structures Electromechanical Water & Wastewater Public works 1 Metal structures 1 SUBCONTRACTS Table 1: Number of firms classified in different fields of construction Subcontracts are contracts between a prime contractor and secondary contractors or suppliers which are applied often on some fields of specialty such as mechanical and electrical works. The prime contractor may subcontract with the approval of the project manager, but may not assign the contract without the approval of the employer in writing. The contractual arrangements between them are similar to those between the employer and the prime contractor where they can be based on lump sum prices or unit prices. t is essential that prime contractors obtain timely and competitive prices for subcontract services. This makes some prime contractors seek for lower prices of subcontract services rather than the ones obtained during preparation of the bid, a practice referred to as bid shopping. This practice is the main reason behind the poor performance of subcontractors. For this reason some bidding procedures often require the bidder to indicate his subcontractors at the stage of bidding and to use only what has been indicated in the bid in case it is approved by the employer. t should be pointed out that it is only the prime contractor that is answerable to the employer regarding the quantity and quality of works. 48

3 FACTORS OF CLASSFCATON LEADNG TO SUBCONTRACTS: Although the classification criteria are strict as mentioned earlier, still some of the firms requesting to renew their classification and the firms with new applications can mislead the classification committee. The process often leads to creating main execution firms that in reality need to subcontract most of the tasks in a project. Never has a class A firm in roads sector, for example, finished a road project using only its own human and machinery resources. A number of indicators that affect results of classification and consequently the success of a firm to complete a project according to contractual requirements have been detected and can be summarized as follows: 1. Members of the classification committee cannot isolate themselves from the environment in which the contracting sector lives and may ignore some factors while evaluating the file. Some references may not be easy to obtain. 2. Private and in some case public sector may issue certificates of completion of projects that do not reflect the actual of the firm in terms of quantity and quality. Those certificates will be used by the classification committee to evaluate the firm's experience. 3. Estimation of the value of equipment mainly depends on the figures that a firm inserts in its file. There are no measures for the efficiency of equipment which cannot necessarily be judged on the year of manufacture. 4. n some cases, the number and qualifications of technical and administrative staff included in the file do not reflect reality. 5. Letters of credits issued by the firms' banks are rarely submitted in a form that indicates the strong financial position of the firm. 6. Prequalification or post qualification of construction firms for a certain project by a certain organization rarely takes in consideration the value of works to be subcontracted by the firm for implementation. n many cases the evaluation concentrates on the source of materials and its specifications. NVOLVEMENT OF SUBCONTRACTS N MPLEMENTATON PROJECTS: Once a bid is offered, deviations from the criteria of classification start to show up. A part from the supply of some materials which the contractor has to purchase from other sources, he starts to look for a professional technical team, rental of equipment and machinery and even a driver for a loader (for example). n many cases a complete lot of works is subcontracted including materials and manpower. Discussions with the main contractors during progress meetings indicate that a lot of poor workmanship and delay in progress of works in certain tasks is caused by the subcontractor. t will disrupt the project if such affected tasks fall on a critical path where other tasks will be affected accordingly. n some cases, it has been found at different stages of the progress that most or all tasks are in the hands of subcontractors. t is therefore not the main firm which is classified by the National Classification Committee that is controlling the progress of works and workmanship. SURVEY ON THE ROLE OF SUBCONTRACTORS: A short survey on the of subcontractors was requested to be filled by a number of prime contractors. Only 14 main classified companies responded on the 49

4 questionnaire. The sample is narrow due to the fact that a limited number of classified firms are functioning in reality. The questionnaire reflected the opinion of prime contractors on the following points: 1. nvolvement of the subcontractors at the stage of study of a project documents including drawings, bills of quantities, specifications and contractual conditions. 2. nvolvement of the subcontractors in cost estimation of the project including materials, equipment and manpower. 3. Contractual procedures between the main and subcontractors including agreements on manpower and equipment to be employed. 4. Methods of conflict resolution between the main and the subcontractors. 5. Actual commitment of the subcontractor to follow sub agreements. The questionnaire is attached in annex 1. The results were assessed manually using Microsoft Excel and are given in annex 2. The percent of contractors given in annex 2 indicate the number of similar answers on a question based on a total number of 14 representing 10. RESULTS AND DSCUSSONS Due to the limited number of responses received, results and discussions did not take in consideration the classification category of prime contractors. The findings are as follows: 1. At the stage of bid study: Subcontractors are involved to a certain extent in the review of the bill of quantities with very low in reviewing drawings, specifications and contractual conditions. 2. At the stage of pricing: Although accurate pricing of a project depends mainly on the evaluation of the costs of materials, equipment and manpower, it is clear that no significant of a subcontractor exists in giving accurate cost analysis. The figures obtained form subcontractors during pricing are used only in 2 of the cases. 3. Agreement with subcontractors: Around 3 of the cases follow contractual procedures between prime contractors and subcontractors. n most cases the prime contractor does not investigate thoroughly on equipment and technical staff of the subcontractor. This of course will be the main reason of conflicts arising between prime contractors and their subcontractors. 4. Deviation from conditions of contracts: n cases of delay, the subcontract follows in about 4 of cases the application of penalties applied on the main contract. On the other side quality assurance does not rank high on the prime contractor's interest. t is almost subject to comments to be raised by the employer. 5. Settlement of conflicts: Due to the lack of contractual obligations according to point 3 above, only 42% of the cases terminate the subcontract in cases of conflicts. The same percentage is faced with cases that cannot terminate the subcontract. This means possible crises during settlement of conflicts between prime contractors and their subcontractors. 50

5 6. Complying with instructions: About 35% of prime contractors suffer from the noncomplying of subcontractors to instructions of the contractor's engineer. 7. General satisfaction: Prime contractors are not satisfied by the performance of their subcontractors in the field of constructions and water & waste water. Almost 6 are often satisfied by road construction subcontractors. Basically for road construction, the equipment and staff of the prime contractor are taking care of the works which means monopoly. CONCLUSONS 1. Subcontractors submit their offers to prime contractors without knowing a lot of details on the project, which illustrates well the bad workmanship met in some projects. 2. No significant of a subcontractor exists in giving accurate cost analysis 2. n many case the technical staff of the prime contractor is not qualified and experienced to the required level. 3. n some cases prime contractors interest is only focused on profit And loss calculations without paying attention to reputation of the firm or the development of the contracting industry at the national level. 5. in some cases contractual obligations between the prime contractor and subcontractors are absent. RECOMMENDATONS 1. Classification criteria should take in consideration the value and type of works performed by the firm with concentration on the past five years since a lot of changes may take place at the firm capability. 2. Letters of credits issued to the firm from their banks should indicate clearly the ceiling of credit that can be awarded to the firm in case it faces financial problems during project implementation. 3. Evaluation of equipment and machinery should take in consideration the working hours since models and years of production do not necessarily reflect reliability of equipment. 4. Certificates of completion of works should be issued in more details according to a format to be proposed by the classification committee with a request to be addressed officially to previous employers of the firm. 5. Employers should consider subcontracts between the prime and subcontractors as a basic part of the prime contract to be negotiated and discussed prior to signing the main contract. n addition prime contractors should be allowed to subcontract limited part of the works to be considered in the bidding documents. 51

6 6. Capacity building programs should not be limited to the official staff representing employers. The technical staff of the private sector needs to be upgraded from the technical and administrative view points. 7. Workshops aiming at capacity building of contracting firms should take place on policies and contracting. REFERENCES [1] Adnan Enshasy, Management of Engineering projects, slamic University, Gaza, 1997 (Arabic Version). [2] Palestinian contractors' classifications instruction, Palestinian Ministry of Public Works, Gaza, [3] Standard bidding Documents, Procurement of works, Smaller contracts, The World Bank, Washington, D.C [4] S.W. NUNNALY, Construction methods and management, 3 rd edition, Prentice hall,

7 ANNEX (1) Questionnaire on Role of Subcontractors in Project Success A (Yes) B (No) C (Often) D (Sometimes) Classification of firm: 1 Bid Study Stage Support of subcontractor through the study of:. Drawings. BOQ s. Specifications V. Contractual conditions 2 Bid Pricing Stage Support of subcontractor staff for pricing the bid in:. Supply of raw materials. Providing the required equipment for the project. Providing manpower V. Dependence on the price of subcontractor at bid pricing 3 Agreement with subcontractor The subcontractor is committed to the prices before bid opening. The subcontract includes the same conditions of the main contract 53

8 . Key personnel proposed for implementation are agreed in advance. Qualifications for key personnel are studied V. Conditions of equipment are studied V. Works be performed usually by qualified staff 4 Deviation of conditions of contract:. Liquidated damages are applied if the employer applies it on the main contract. Liquidated damages are applied even if the employer doesn t apply it Penalties on bad workmanship. Applied if the employer applies it on the main contract V. Applied even if the employer doesn t apply it on the main contract 5 Conflicts with subcontractors. Subcontract is terminated and another subcontractor is employed. Conflicts resolved interlay or using a third party. n all cases subcontractors get what they claim even if it is out of the agreement. 6 Complying with the contractor s Engineer instruction 54

9 . Firm is monitoring the subcontractor performance closely. Subcontractor repair works upon the contractor s engineer instructions. Works hand over is related to handing over to the employer V. n all case subcontractor is considered professional. No need to follow up. 7 Satisfaction on subcontractor performance. n Structures sector. n Water and waste water sector. n Roads sector 8 Please indicate any other problems affect the progress of work because of subcontractors. 55

10 ANNEX (2) Results of Questionnaire on Role of Subcontractors in Project Success 1. Bid Study Stage 10 5 V 2. Bid Pricing Stage V 3. Agreement with subcontractor V V V 4. Deviation from Contracts Conditions 10 5 A 56B C D V

11 5. Settlement of Conflicts Complying with nstruction of Contractor's Engineer 10 5 V 7. Satisfaction on Subcontractor performance