Dredging Contract Disputes; Avoid It!

The Role of Contracts in Project Management:

Considering their highly strategic role in managing projects, professionalism, and competence of a project manager or engineer will bring a significant impact on the successful implementation of a project. One of the devices that will greatly assist project managers or engineers in carrying out their duties above is construction employment contracts prepared by the employer and the contractor or the service provider.

Construction employment contracts are defined as the entire document that governs the legal relationship between the service user and the service provider in a construction project. The following are contractual models:

1) Fixed Price Contracts, i.e. the total price of the entire work or the price per work unit has been predetermined from the beginning. This type of contract includes Lump Sum Contracts and Unit Price Contracts

2) Prime Cost Contracts, i.e. the owner shall pay the actual cost incurred during the implementation stage, coupled with the fee charged for services provided by the contractor (including administrative costs). This type of contract is divided into Cost Plus Fixed Percentage, Cost Plus Fixed Fee, Cost Plus Variable Percent, Target Estimate, and Guaranteed Maximum Cost.

Dredging

Dredging work can be classified into four types, namely; 1) capital dredging; 2) maintenance dredging; 3) rock dredging; and 4) reclamation. Before initiating dredging work, it is usually necessary to conduct a survey to examine and collect data. The survey may be in hydrography, geotechnics, hydraulics, or meteorology. Models of Dredging Contracts can be categorized as follows:

1) Fixed Lump Sum Price: in this contractual model, the service user and the service provider agree on a fixed amount to be paid by the service user to the service provider for the entire dredging work in order to reach the predetermined basin depth and area width set forth in the contract.

2) Unit Price: in general, in this contractual model, the volume of dredging materials written in the contract is an estimate, where the amount of the volume is obtained from the bathymetric mapping calculation before the dredging work is initiated, with the average depth to be achieved. As for the actual dredging volume, it will be recalculated and measured by the service user in conjunction with the service provider to determine the volume of work actually performed.

3) Performance Based Contract: this contractual model is different from the traditional one, in which payment to the service provider is determined based on the accomplished “performance” of the work. Performance-based contracts in dredging work are usually applied to jobs which include maintaining dock, basin, and channel depth.

Factors Causing Disputes

It is undeniable that in any construction projects there is a high possibility of disputes to occur. Basically there are three root causes of disputes in construction projects, namely:

(1) uncertainty in any construction project,

(2) issues related to the construction contract, and

(3) the opportunistic behavior of the parties involved in construction projects.

Disputes in construction processes can be divided into two, seen from the root causes, namely construction-related disputes and human behavior-related disputes. There are several key factors which trigger the complexity of a construction project, which in turn lead to disputes, namely:

1) The validity of the instruction given by the client or consultant to the contractor.

2) The client or owner misunderstands the delivery or service the contractor has promised them.

3) Weak management capabilities in areas relating to law, and dispute resolution which instead make conflicts last longer.

4) The cultural diversity which leads to poor communication and understanding among the parties entering into the contract.

There are a couple of things which causes disputes, allowing one makes a claim, namely improper and poor design information, incomplete site investigations, clients’ slow response, poor communication, unrealistic deadline, poor contract administration, beyond-control external events, incomplete tender information, unclear risk allocation, delay (delays in payment). This dispute can be simplified into two classifications, namely organizational issues and the issues of uncertainty.

Root Causes of Disputes in Dredging Projects:

1) incomplete plan drawings or technical specifications,

2) differences in field conditions,

3) unclear risk allocation,

4) inappropriate selection of contractual models,

5) delay in work completion, and 6) additional or reduced work.

The most important criteria to note to avoid disputes in dredging projects is on the technical and quality aspects, with the factors of fixed designs and complete and accurate drawings as the most significant sub-criteria

Always get in touch with deeply experienced dredging professionals/consultants with great emphasis on specialization pre, monitoring, and post dredging projects.