The Construction and Performance of Commercial Contracts

This book analyses the principles underlying the construction and application of a number of boilerplate and other clauses commonly included in commercial contracts. The first Part of the work deals with general principles of interpretation. It then considers clauses which allocate commercial risk; clauses relating to performance; clauses introducing new parties by way of assignment, novation or nomination; clauses such as guarantees and indemnities which create liabilities in third parties; and dispute resolution clauses including governing law. The authors highlight common issues surrounding the application of these clauses in practice and, where appropriate, make drafting recommendations based on their analysis of case law and the operation of relevant statutes. This is a very accessible resource for all commercial practitioners.

Skill development for innovative procurement environments in construction

The construction industry should be a priority to all governments because it impacts economically and socially on all citizens. Sector turnover in industrialised economies typically averages 8-12% of GDP. Further, construction is critical to economic growth. Recent Australian studies estimate that a 10% gain in efficiency in construction translates to a 2.5% increase in GDP Inefficiencies in the Australian construction industry have been identified by a number of recent studies modelling the building process. They have identified potential savings in time of between 25% and 40% by reducing non-value added steps in the process. A culture of reform is now emerging in the industry – one in which alternate forms of project delivery are being trialed. Government and industry have identified Alliance Contracting as a means to increase efficiency in the construction industry as part of a new innovative procurement environment. Alliance contracting requires parties to form relationships and work cooperatively to provide a more complete service. This is a significant cultural change for the construction industry, with its well-known adversarial record in traditional contracting. Alliance contracts offer enormous potential benefits, but the Australian construction industry needs to develop new skills to effectively participate in the new relationship environment. This paper describes a collaborative project identifying skill needs for clients and construction professionals to more effectively participate in an increasingly sophisticated international procurement environment. The aim of identifying these skill needs is to assist industry, government, and skill developers to prepare the Australian construction workforce for the future. The collaborating Australian team has been fortunate to secure the Australian National Museum in Canberra as its live case study. The Acton Peninsula Development is the first major building development in the world awarded on the basis of a joint alliance contract.

Respecting contractual intentions : balancing consumer expectations with the sanctity of contract in the context of standard form insurance contracts

It is the purpose of this article to examine the means curently available to judges to achieve a workable balance between providing appropriate consumer protection to signatories of standard form contractors while still retaining adequate respect for the sanctity of contract, and, based on this analysis, to determine whether a significantly greater scope of contract (re)construction is likely to become the norm in most common law jurisdictions in the coming decades.

Financial incentives and advanced construction procurement systems

Construction clients often use financial incentives to encourage stakeholder motivation and commitment to voluntary higher-order project goals. Despite the increased use of financial incentives, there is little literature addressing means of optimizing outcomes. Using a case study methodology, the examination of a successful Australian construction project demonstrates the features of a positively geared procurement approach that promotes the effectiveness of financial incentives. The research results show that if the incentive system is perceived to be fair and is applied to reward exceptional performance, and not to manipulate, then contractors are more likely to be positively motivated.

Motivating construction organisations through incentives : a case study for client-side project managers

Client-side project managers face challenges in motivating project organisations to pursue exceptional design and construction performance. One approach to improving the motivation of project organisations is by offering a financial incentive reward for the achievement of voluntary performance standards above the minimum required standard. However, little investigation has been undertaken into the features of a successful incentive system as a part of an overall procurement strategy. In response to a lack of information available to client-side project managers tasked with the initial design of an incentive system, the paper explores motivation under a successful incentive and identifies key learnings for client-side project managers to consider when designing incentives. Our findings are based on the results of a large Australian case study which is interpreted against a conceptual framework based on both economic and psychological perspectives of motivation. The results suggest that motivation towards incentive goals is influenced by the value the project organisations place on the incentive reward as a commercial opportunity to increase their profit margins. However, perhaps more important are the relationship management processes that promote commitment to the project; and pride in the achievement of project goals. In the case study, these processes intensified the direct motivational effect of the incentive reward on offer. The findings also highlight the importance of ensuring that incentive goals and performance measurement processes remain relevant to the organisations throughout a project to continuously encourage motivation under changing project conditions.

Construction project delivery and industry skills : crafting a better fit

The construction industry should be a priority to all governments because it impacts economically and socially on all citizens. Sector turnover in industrialised economies typically averages 8-12% of GDP. Further, construction is critical to economic growth. Recent Australian studies estimate that a 10% gain in efficiency in construction translates to a 2.5% increase in GDP ----- ----- Inefficiencies in the Australian construction industry have been identified by a number of recent studies modelling the building process. They have identified potential savings in time of between 25% and 40% by reducing non-value added steps in the process. A culture of reform is now emerging in the industry – one in which alternate forms of project delivery are being trial. ----- ----- Government and industry have identified Alliance Contracting as a means to increase efficiency in the construction industry as part of a new innovative procurement environment. Alliance contracting requires parties to form relationships and work cooperatively to provide a more complete service. This is a significant cultural change for the construction industry, with its well-known adversarial record in traditional contracting. Alliance contracts offer enormous potential benefits, but the Australian construction industry needs to develop new skills to effectively participate in the new relationship environment. ----- ----- This paper describes a collaborative project identifying skill needs for clients and construction professionals to more effectively participate in an increasingly sophisticated international procurement environment. The aim of identifying these skill needs is to assist industry, government, and skill developers to prepare the Australian construction workforce for the future. The collaborating Australian team has been fortunate to secure the Australian National Museum in Canberra as its live case study. The Acton Peninsula Development is the first major building development in the world awarded on the basis of a joint alliance contract.

Determining the appropriate proportion of owner-provided design in design-build contracts - a content analysis approach

The Request For Proposal (RFP) with the design‐build (DB) procurement arrangement is a document in which an owner develops his requirements and conveys the project scope to DB contractors. Owners should provide an appropriate level of design in DB RFPs to adequately describe their requirements without compromising the prospects for innovation. This paper examines and compares the different levels of owner‐provided design in DB RFPs by the content analysis of 84 requests for RFPs for public DB projects advertised between 2000 and 2010 with an aggregate contract value of over $5.4 billion. A statistical analysis was also conducted in order to explore the relationship between the proportion of owner‐provided design and other project information, including project type, advertisement time, project size, contractor selection method, procurement process and contract type. The results show that the majority (64.8%) of the RFPs provide less than 10% of the owner‐provided design. The owner‐provided design proportion has a significant association with project type, project size, contractor selection method and contract type. In addition, owners are generally providing less design in recent years than hitherto. The research findings also provide owners with perspectives to determine the appropriate level of owner‐provided design in DB RFPs.

Motivating construction organisations through incentives : a case study for client managers

Client-side project manager face challenges in motivating project organisations to pursue exceptional design and construction performance. One approach to improving the motivation of project organisations is by offering a financial incentive reward for the achievement of voluntary performance standards above the minimum required standard. However, little investigation has been undertaken into the features of a successful incentive system as a part of an overall procurement strategy. In response to a lack of information available to client-side project managers tasked with the initial design of an incentive system, the paper explores motivation undera successful incentive and identifies key learnings for client-side project managers to consider when designing incentives. Our findings are based on the results of a large Australian case study which is interpreted against a conceptual framework based on both economic and psychological perspectives of motivation. The results suggest the motivation towards incentive goals is influenced by the value the project organisations place on the incentive reward as a commercial opportunity to increase their profit margins. However, perhaps more important are the relationship management processes that promote commitment to the project; and pride in the achievement of project goals. In the case study, these processes intensified the direct motivational effect of the incentive reward on offer. The findings also highlight the importance of ensuring that incentive goals and performance measurement processes remain relevant to the organisation throughout a project to continuously encourage motivation under changing project conditions.

Using process models to support design of airport terminals

The complex design process of airport terminal needs to support a wide range of changes in operational facilities for both usual and unusual/emergency events. Process model describes how activities within a process are connected and also states logical information flow of the various activities. The traditional design process overlooks the necessity of information flow from the process model to the actual building design, which needs to be considered as a integral part of building design. The current research introduced a generic method to obtain design related information from process model to incorporate with the design process. Appropriate integration of the process model prior to the design process uncovers the relationship exist between spaces and their relevant functions, which could be missed in the traditional design approach. The current paper examines the available Business Process Model (BPM) and generates modified Business Process Model(mBPM) of check-in facilities of Brisbane International airport. The information adopted from mBPM then transform into possible physical layout utilizing graph theory.

Airport ground transportation policies and the future of rail connections at US airports

Airports are currently being pressured to operate in a more environmentally-sensitive manner; as a response, airports have integrated environmental policies into their operations. However, environmental concerns regarding automobile traffic and related emissions have yet to be addressed. While the automobile is the dominant air passenger ground transportation mode at US airports, services facilitating automobile usage including public parking and car rentals are a major airport revenue source. Less than 20 US hub airports have direct access to rail-based transportation modes. New rail transportation projects serving additional airports are either being consideration or under construction. Regardless of whether an airport has direct access to rail-based transportation modes, the air passenger ground transportation modal split at US airports remain low in comparison to those in Asia and Europe. The high cost of providing additional US airports with direct rail connections in an era of severe governmental budgetary cutbacks is making the “build it and they will come” mindset untenable. Governmental policies are but one factor determining whether programs increasing transit usage results in automobile traffic reductions and related emissions. This study reveals that a significant percentage of the busiest US airports do not have policies fostering increases in the air passenger ground transportation modal split. A case study of one US airport is presented that has successfully adopted a transit first policy to achieve a high air passenger ground transportation modal split and facilitate the availability of rail-based transportation services.

Debts “incurred” by receivers, administrators and liquidators : the case for a harmonised construction of ss 419, 443A and 556(1)(a) of the Corporations Act

This article analyses the inconsistent approaches taken by courts when interpreting provisions of the Corporations Act which address debts or expenses “incurred” by receivers, administrators and liquidators. The article contends for a consistent construction of these provisions which will enable the legislation to operate (as was intended) for the benefit of persons who supply goods, services or labour to companies in external administration. The article explains how and why debts can be “incurred” by insolvency practitioners continuing on pre-existing contracts. Specifically, the article contends for a construction of ss 419 and 443A of the Corporations Act which renders receivers and administrators personally liable for certain entitlements of employees (eg, wages and superannuation contributions) which become due and payable by reason of the decision of a receiver or administrator to continue a pre-existing contract rather than terminate it.

The construction contract bidder homogeneity assumption : an empirical test

This paper describes an empirical study to test the proposition that all construction contract bidders are homogeneous ie. they can be treated as behaving collectively in an identical (statistical) manner. Examination of previous analyses of bidding data reveals a flaw in the method of standardising bids across different size contracts and a new procedure is proposed which involves the estimation of a contract datum. Three independent sets of bidding data were then subjected to this procedure and estimates of the necessary distributional parameters obtained. These were then tested against the bidder homogeneity assumption resulting in the conclusion that the assumption may be appropriate for a three parameter log-normal shape, but not for scale and location.

Analysing governance categories used on project alliances in the construction industry

In Australia, collaborative contracts, and in particular, project alliances, have been increasingly used to govern infrastructure projects. These contracts use formal and informal governance mechanisms to manage the delivery of infrastructure projects. Formal mechanisms such as financial risk sharing are specified in the contract, while informal mechanisms such as integrated teams are not. Given that the literature contains a multiplicity of often untestable definitions, this paper reports on a review of the literature to operationalize the concepts of formal and informal governance. This work is the first phase of a study that will examine the optimal balance of formal and informal governance structures. Desk-top review of leading journals in the areas of construction management and business management, as well as recent government documents and industry guidelines, was undertaken to to conceptualise and operationalize formal and informal governance mechanisms. The study primarily draws on transaction-cost economics (e.g. Williamson 1979; Williamson 1991), relational contract theory (Feinman 2000; Macneil 2000) and social psychology theory (e.g. Gulati 1995). Content analysis of the literature was undertaken to identify key governance mechanisms. Content analysis is a commonly used methodology in the social sciences area. It provides rich data through the systematic and objective review of literature (Krippendorff 2004). NVivo 9, a qualitative data analysis software package, was used to assist in this process. A previous study by the authors identified that formal governance mechanisms can be classified into seven measurable categories: (1) negotiated cost, (2) competitive cost, (3) commercial framework, (4) risk and reward sharing, (5) qualitative performance, (6) collaborative multi-party agreement, and (7) early contractor involvement. Similarly, informal governance mechanisms can be classified into four measureable categories: (1) leadership structure, (2) integrated team, (3) team workshops, and (4) joint management system. This paper explores and further defines the key operational characteristics of each mechanism category, highlighting its impact on value for money in alliance project delivery. The paper’s contribution is that it provides the basis for future research to compare the impact of a range of individual mechanisms within each category, as a means of improving the performance of construction projects.

Learning routines used by firms during construction of infrastructure projects using the alliance procurement method

Collaborative contracting has emerged over the past 15 years as an innovative project delivery framework that is particularly suited to infrastructure projects. Australia leads the world in the development of project and program alliance approaches to collaborative delivery. These approaches are considered to promise superior project results. However, very little is known about the learning routines that are most widely used in support of collaborative projects in general and alliance projects in particular. The literature on absorptive capacity and dynamic capabilities indicates that such learning enhances project performance. The learning routines employed at corporate level during the operation of collaborative infrastructure projects in Australia were examined through a large survey conducted in 2013. This paper presents a descriptive summary of the preliminary findings. The survey captured the experiences of 320 practitioners of collaborative construction projects, including public and private sector clients, contractors, consultants and suppliers (three per cent of projects were located in New Zealand, but for brevity’s sake the sample is referred to as Australian). The majority of projects identified used alliances (78.6%); whilst 9% used Early Contractor Involvement (ECI) contracts and 2.7% used Early Tender Involvement contracts, which are ‘slimmer’ types of collaborative contract. The remaining 9.7% of respondents used traditional contracts that employed some collaborative elements. The majority of projects were delivered for public sector clients (86.3%), and/or clients experienced with asset procurement (89.6%). All of the projects delivered infrastructure assets; one third in the road sector, one third in the water sector, one fifth in the rail sector, and the rest spread across energy, building and mining. Learning routines were explored within three interconnected phases: knowledge exploration, transformation and exploitation. The results show that explorative and exploitative learning routines were applied to a similar extent. Transformative routines were applied to a relatively low extent. It was also found that the most highly applied routine is ‘regularly applying new knowledge to collaborative projects’; and the least popular routine was ‘staff incentives to encourage information sharing about collaborative projects’. Future research planned by the authors will examine the impact of these routines on project performance.