Deciding on the best way to price contracts

by Zoe Naylor Jul 12, 2008

It has been widely reported that during the past year, construction costs have increased by more than 100%, with the major contributors for higher prices being cement, steel and diesel.

During this same period, materials prices have shot up by almost 200%. The net effect for contractors is that their profit marginshave taken a severe hit.

Most recently, the government has been urged by contractors to look at ways to manage and prevent further escalation of construction materials' prices. An option is for a move towards cost-plus contracts..

It may be opportune to refresh ourselves on common pricing methods to help determine which form of pricing is preferable for specific construction contracts.

Types of pricing methods

There are three pricing methods in construction contracts. There are situations where distinct trade packages in a construction process require different pricing methods.

Remeasurable

There is the now less popular remeasureable form, which is adopted in the Fidic 4th Old Red Book. For this method, the employer accepts the risk of variations in the quantities originally estimated and in some cases, for the rates and prices tendered.

At the tender stage, prospective contractors would fill in a proposed unit price or rate for each item and the contract price is calculated by adding the priced items in the bill of quantities.

Payment of the contractor for the value of the works completed is in accordance with the contract. Therefore, the bill of quantities, which consists of a number of items and a certain quantity to each item, is a key contractual and pricing document.

This is particularly true in civil engineering works, where often the quantities are unpredictable given the high content of ground surface work.

Cost-reimbursable

The second method is the cost-reimbursable form. The employer accepts the entire risk of carrying out the work and the contractor is reimbursed for the actual cost of carrying it out plus a fee, which in effect is an additional amount of money in respect of profit, head office and risk.

There is no applicable Fidic form for this pricing method. Given its rather special nature, the engineer's powers, for example, in the Old Red Book and the Fidic 1999 New Red Book, will require modification.

It is therefore generally accepted that Fidic forms may not necessarily be appropriate for this pricing method.

Possible forms include cost plus percentage fee, cost plus fixed fee, cost plus fluctuating fee and target price contracts, which could include a Guaranteed Maximum Price (GMP) slant.

The GMP is basically a monetary value which caps payments to the contractor. Arguably, there should be wording in the construction contract to prevent the contractor from asserting other types of claims or damages.

Proponents of a "pure" GMP contract will always insist on having these couple of key aspects addressed, being (a) the cost to the contractor for carrying out the work in terms of how it is calculated and what the work actually entails and (b) what actually constitutes the fee.

If they are not clearly agreed upon with the contractor, it is likely a "pure" GMP contract will be absent.

Lump sum

The third form is the rather commonly used lump sum method, which is very much what the Fidic Yellow and Fidic Silver is about in terms of pricing. The employer accepts the least amount of risk with respect to quantities and the contractor is obliged to carry out all the work included in the contract documents for a fixed-fee tendered specified sum.

It is generally regarded as useful where the quantities are expected to remain unchanged.

In instances when there could be several events that would entitle a contractor to receive an extra payment, particularly where inaccurate drawings and contract documents do not describe the work, a bill of quantities is used.

Assuming that design is in a fairly advanced stage, it is likely that such a pricing method would be adopted.

Lump sum versus GMP

The ultimate aim for both lump sum contracts and GMP contracts is for the consultant to sit down with the employer to discuss a maximum cost for the project. Yet one would invariably find that the difference is almost purely administrative.

In a GMP contract, payment is usually made as the work is completed, based on actual invoices for sub-contractors and materials, while a negotiated lump sum contract means that the price remains fixed, but due to cash flow management or to minimise the administrative aspects, the contractor bills on a preset payment schedule.

Addmittedly, this tends to be used more for professional services than construction work.

Other considerations

Other key issues arise in deciding the appropriate pricing methods to suit the circumstances. For instance, taxation and currency-related matters can also complicate payment terms.

Chau Ee Lee, international construction lawyer, celee@reedsmith.com, Reed Smith Dubai.

Lump sum contracts: has it gone on too long?

by Conrad Egbert Jan 12, 2008

Inflating overheads: Operational costs that are causing the inflation include a lack of labour accommodation

Last week, Construction Week reported on escalating material costs, including the price of steel, which has gone up by almost 15% within the space of a week.

As good as the idea is for workers, paying salaries through banks is costing us a lot in bank charges

Raw materials make up about 30% of construction costs and if this wasn't alarming enough, it is not the only contributing factor to the inflationary bottom line.

Overhead operating costs are as much of a problem.

More worrying is the fact that these costs are affecting contract bids, which in turn could lead to a slowdown in the ongoing construction boom.

Apart from the obvious raw material costs, operational costs that are causing the inflation include a lack of labour accommodation and rent increases, the new mandatory health insurance policy costs, higher visa costs, a rise in costs for hiring equipment and additional bank charges due to a new labour policy that stipulates all employees, including construction labourers, will now have to be paid through bank transfers.

But what does this mean for contractors and what are the implications?

Freddy Lama, managing director and owner of Nova Electromechanical Contracting Company in Abu Dhabi has blamed it on the unavailability of office and residential space.

"Abu Dhabi in particular is facing a pressing shortage of office and residential space, which have caused rents to double over the past year. This in turn has caused our overhead costs to inflate. For example, let's say our dry costs [actual costs of labour and material] is US $1 million. Then our bid would be about $1.5 million. But due to inflation, our bid will now rise to $1.75 million and will probably go up even further if the inflation doesn't stop.

Lama added that the minimum increase on a contract bid is now 20%, which will result in more pressure on the client.

He also said that the cost of housing for workers has doubled over the past year.

"We used to pay about $68 (AED250) per head for semi-skilled workers. It has now gone up to $136. As for skilled workers, it was about $82 and is now $190. Engineers and foremen would cost us $109 in the past, whereas now they cost about $272.

Backing Lama's argument, Ani Ray, country director of Simplex Infrastructure, said that labour accommodation cost was one of the biggest issues, but additional expenses such as bank salary costs and the new visa costs were also compounding the situation.

"About six years ago labour accommodation was costing me around $218 per room per month for six people," said Ray.

"Now it is $1089 - $1306 for the same, which is almost six times the amount

"Also, as good as the idea is for the workers, paying salaries through banks is costing us a lot in bank charges. It costs us $33 per worker to maintain a bank account for a year. Now try multiplying that by all the workers we have. It's a lot of money.

Ray added: "Previously, the authorities required companies to place a security deposit of $136,140 for hiring workers in bulk, whereas now it costs $816 per worker. So, for example, if a company hires 1000 employees, they're set back by $816,000, which can't be touched or invested.

The cost of hiring equipment has also gone up by 20% in the last year.

And health insurance has been another financial burden, according to Ray and Lama. "Insurance costs are hurting us as well, as it didn't exist before," said Lama.

"Now if a worker's salary is less than $1,089 per month, insurance will cost us $182 per year; while if the salary is $1,089 and above it will cost us about $408 per head per year. For management level staff, it's costing about $4,080 per month, which covers almost nothing.

Lama added that rising costs are hampering plans for the company's expansion. The company is unable to hire more workers because it is not financially viable until prices stabilise and profit margins return to normal.

Contractors could be faced with more costs with the expected introduction of a minimum wage and VAT.

"Contractors would have to bear VAT since the Subsequent Legislation clause in normal FIDIC contracts is overruled by a special condition in contracts here," added Ray.

Bishoy Azmy, CEO of contractor ASGC, said that the cost burdens could be handled in two ways.

"One way is by factoring inflation into our bids, as contracts here don't usually have escalation clauses; it's always a fixed lump sum price," he said.

"But this is more of a temporary and selfish way of handling it. In fact, this will only keep the inflation buoyant and maybe even inflate it further.

"The better and longer lasting way to deal with this would be an“open book' strategy with the client. Overhead costs could be fixed through a “cost plus' contract. This way the client agrees to take on any escalation in prices and the contractor won't submit an inflated bid.

"If material prices go up, the client will pay the difference. This is the best way forward. The way contracts here are drawn up needs to change.

Two articles about delay analysis techniques http://cmguide.org/archives/4

Filed in Project Management on Sep.09, 2008

ARTICLE No. 1
To go retrospective, or to go prospective
by Chris Larkin

Delay analysis is a widely debated construction law subject due to the number of projects that are not completed on time, the financial implications of late completion and the often quite different conclusions that can result depending upon the method of analysis used.

Given the size of the construction market in the region, it is no surprise that the topic has featured in this column before and it will likely continue to be a source of much discussion.

This is first of two articles in which I will describe commonly used delay analysis techniques, what is needed for each and their advantages and drawbacks.
Delay analysis is the technique used to identify causes of delay and the impact they have on the progress and completion of a project. It is necessary in some form for claims for extensions of time and cost of prolongation. Without it a contractor will fail to demonstrate any entitlement.

It is crucial to any claim that the most appropriate method of delay analysis is adopted. If you choose a method that fails to deal with issues such as culpable delays, concurrent delays and changes in logic then the claim might be easily rebutted. Whereas, using a sophisticated method for a simple issue can be a waste of time and money. A number of factors influence the selection of approach including the requirements of the contract, quality of the contractor’s planned programme, quality and extent of records and the complexity of the issue.

Each method of delay analysis falls into one of two categories: either prospective or retrospective. Prospective techniques are those that predict the likely impact on the progress of the works. Retrospective techniques are those that seek to demonstrate the actual impact on the works. The latter can only be used after the works have been completed or after the impact of the delay event has ceased. Prospective analysis can be used both before and after the delay effect has taken place.

The first method I will describe is called “As-planned v As-built”. This is a retrospective method that involves a simple comparison of the contractor’s planned programme as to how it intended to execute the works with the actual events. This is done by drawing bars and/or lines on the planned programme that show when the activities actually started and finished. The argument put forward when this technique is used is that the difference between the two programmes is the entitlement to an extension of time.

This technique obviously requires the contractor’s planned programme and good as-built records of when work was undertaken. Since it is a simple graphical comparison, there is no need to have a properly logic linked programme or to use planning software. Its other advantages are that it is quick and simple to prepare and it is easily understood.

This method does have a number of significant drawbacks. It does not identify who is at fault, it does not demonstrate cause and effect, it takes no account of the contractor’s culpable delays and it can only be used retrospectively. As a result, claims for extensions of time based solely on this method might not be successful. Nevertheless, it is often the first step in analysing delays as it can quickly highlight those activities that did not proceed as planned.

Another method is called “Impacted As-planned”. This technique is the one most commonly used by contractors in claims for extensions of time. It involves inserting activities and/or constraints to represent periods of excusable delay into the contractor’s planned programme. The periods of delay are logic linked to activities in the programme to determine the impact on progress and completion. This is a prospective form of analysis as it predicts the likely impact. The argument used with this technique is that the entitlement to an extension of time is the difference between the As-Planned programme and the Impacted As-Planned programme.

The Impacted As-planned technique relies upon having a good baseline programme that accurately reflects the intended method of construction. It does not require as-built records but where possible it is good practice to cross check the results against as-built milestones. It is contractors’ preferred method as it is relatively quick and simple to undertake, easily understood and often gives results more in the contractor’s favour.

For very simple claims for extensions of time, this approach might suffice. Where, however, the circumstances are more complex, such as where there are multiple causes of delay with wide ranging impact, this technique may fail. This is because it takes no account of the progress of the works, contractor’s own delays, adjustments in levels of resources and changes to programme logic.

The two techniques described above are perhaps the easiest and most commonly used in claims for extensions of time.. In my next
article, I will describe two more sophisticated methods that address many of the defects of the “As-Planned v As-Built” and “Impacted As-Planned” approaches.

—————————————————————–


ARTICLE No. 2
The sophisticted methods of delay analysis available
by Chris Larkin

In my first article on delay analysis, I described two simple methods that can be used to assess the delays on a project. The methods I described were as-planned v as-built and impacted as-planned”. This second article describes two further more sophisticated methods: as-built but-for and time impact analysis.

In brief, as-built but-for involves removing the effects of delay events from the as-built programme in order to assess how the work would have progressed in the absence of the delays.

First, a dynamic as-built programme is produced using planning software to create a model of the timing and sequence of actual events. The model must precisely replicate how the works were executed using as-built start dates, finish dates and activity durations with appropriate logic links between activities.

The second stage involves identifying the delay events in the as-built programme and apportioning them to the party responsible for them. The delay events are shown in the as-built programme either as activities or constraints. Their impact is modeled by creating logic links between the delay events and subsequent activities.

The third stage involves removing the delays from the as-built programme to produce an as-built but-for programme to show how the works would have been constructed but for the delays. When used in claims for extensions of time, only delays for which the contractor is not responsible are removed. It can then be argued that the extension of time due is the difference between the respective completion dates of the full as-built programme and the as-built but-for programme.

In practice, several iterations are required to ensure that the model represents what would have happened but for the delays. This involves adjusting the level of detail, logic and durations of activities.

As this approach relies upon having an accurate as-built programme, good as-built records are essential. It is also vital that the construction team is consulted in order to gain an understanding of the methods of construction, relationships between activities and practical impact of delays.

This approach has a number of advantages: it is fact-based and less theoretical than other methods; the basic principle is easily understood; and it can be easily presented and explained. It does, however, come with a health warning: care is needed to ensure that the model addresses concurrent culpable delays, re-sequencing, redistribution of resources and acceleration. If such matters are not accounted for then the results will be misleading.

The final method of delay analysis I will describe is called time impact analysis. This method attempts to determine the impact of delay events on the contractor’s intentions for the remaining works, taking into account the actual progress at the time the delay event occurred.

The first step is to verify the contractor’s planned programme and correct any errors. The second step is to identify delay events and periods. Next, the actual progress of the works at the start of the first delay event is input into the contractor’s programme to check whether the completion would have been delayed by the contractor’s rate of progress. Activities representing the delay are then added to the program, which is then re-analysed, and any further delay is recorded. It is then argued that the further delay is the contractor’s entitlement to an extension of time at the time the delay event occurred. The process is then repeated for each delay event.

Time impact analysis requires a suitable planned program that truly reflects the contractor’s intentions for executing the work. This method also requires reliable and consistent progress data at small enough intervals to make the analysis meaningful.

When undertaken properly, this method of analysis addresses the complex issues of concurrent delays, acceleration and resequencing of activities. It is often used by expert witnesses when giving opinions in arbitration or litigation. It is also the method recommended by the Society of Construction Law’s Delay and Disruption Protocol.

Due to its complexity, Time Impact Analysis has two significant disadvantages: it can be slow and so expensive to carry out; and can be difficult to communicate the approach and results.

In my view, there is no single method of delay analysis that will suit all situations. The choice of method depends upon the requirements of the contract, nature of the delay events, quality of the planned programme, records to hand, time available, value of the dispute and target audience.

For many of the major projects in the region, speed to market is critical and so any delay can have significant implications. Consequently, the analysis of delays is an important matter and is vital for resolving time-related disputes.

If there were a single method of analysis that yielded only one result from a given set of facts then there would be little doubt as to the party responsible for the delay. Until such a method is found, however, delay analysis will continue to be a subject of much debate.

Source: Construction Week

QR 18 Billion Annual Budget for Road Projects

Al Kabi: ‘Why most of the road projects are delayed ?’

• Contract signing for North Road soon; Lusail road most important project of the year
• «Ashghal» is a new institution established to expedite the process of infrastructure development
• We have reduced delays, faced difficulties; yet implemented projects efficiently
• History would remember all who contributed to upgrade state’s infrastructure
• Eng. Mohammed Jamal: QR Five Billion for upgrading roads in residential area

In a conversation with Ashghal correspondent, Eng Jamal Shareeda al Kabi, manager of the projects department of roads affairs of Ashghal rendered that the budget for road projects of the fiscal year 2007/ 2008 exceeds18 billion Qatari riyals, of which more than 13 billion Qatari riyals go for projects of major roads and highways.

The projects going to cast for bidding successively in the coming period include implementation of a number of road projects in different parts of the state, which will enhance an improved road network. Among the most important projects are Salwa Road (first and second phases), North Road project from (North Bridge to Al Khor Interchange covering Semeisma road, from al Khor Interchange to Al Ruwais Interchange). This project is currently under awarding stage. This mega project is expected to be assigned to an international company.

Eng Al Kaabi denied the accusation that Ashghal road projects are just on paper, they do not exist on reality, pointing out that completion of such projects re-establishing all infrastructure services require time, and they cannot be implemented between day and night.

From his part, Eng Mohamed Jamal, head of Secondary Road Projects of the projects department revealed that the budget for the secondary projects during the current fiscal year exceeds (5) billion Qatari riyals, for upgrading roads within residential areas.

These things were clarified during an interview with Ashghal with the manager of projects department in the presence of head of secondary projects. The following is the excerption:

In the beginning, Eng Jamal Shareeda Al Kaabi explained that the list contains 19 projects for major streets and highways. They are: Phase II and III of the North Road (from the North Bridge to Al Ruwais Interchange). This mega project is scheduled to bid
within the next few weeks and its work will begin in the last quarter of this year. The list also includes the fourth phase of North Road, which extends from Al Zabara Interchange to Ras Usheirej Interchange, a point of convergence of the connection bridge between Qatar and Bahrain.

Other major projects are: Doha Expressway (from E Ring to the New Airport Street), the second phase of Salwa Road (from Industrial Interchange to Al Asiri Interchange), Al Wakra Bye-Pass of Doha Expressway, Lusail Road (first phase), Doha Expressway (east-west road) third phase of Salwa Road (Midmac Interchange to A Ring), Road 55 (Salwa - Mesaeed), Dukhan International Road (from Tilted Roundabout to Bani Hajer Roundabout), the second phase of Lusail Road, Doha Expressway (F Ring), Dukhan Road (from Bani Hajer to Shahaniyya), upgrading Al Markhia street with Interchanges, East Industrial Road and Al Muntaza Extension of Doha Expressway. In addition, there
are major consultancy services for the major roads, fence protection on the road to prevent the transit of animals and constructing special crossings for them.

Secondary Road Projects
Eng Mohamed Jamal, head of secondary road projects section, stressed on the importance of the role played by his section in upgrading roads within residential areas and roads that link between different zones.

According to him, half of the budget for secondary projects is allocated for Doha city and the list of projects includes the following:

Upgrading roads in Khalifa Town South (zone 34), upgrading major roads in zone No (46), upgrading roads in the zones (43), (44) & (56), third and fourth phases of upgrading of roads in Khalifa Town North and Al Markhia (zones 32 and 33), upgrading roads in the industrial area, the third phase of road works in zone No (1300), zone (56)& Al Muntaza (zone 24); first and fifth phase of upgrading roads in New Salata (zone 40); upgrading roads at Al Sadd and Al Mirqab (zones 38, 39); construction of roads
and infrastructure at Mesaimeer (Valley Housing); road improvement works in Doha municipality and consultancy services in Doha city.

The budget allocated to the roads at Al Rayyan and Al Garaffa hit approximately 1.8 Billion Qatari riyals. The list of projects at these zones includes:
upgrading roads in zone No.(51), link roads at New Ezgavai, internal roads in West Muaidher, Bani Hajer and Eastern areas of Al Luqta (area 52); upgrading main roads at Abu Sidra, internal roads amid Muaidher, construction of roads and infrastructure at Bani Hajer North; development of roads at new Sailiyyah (first phase), Al Waab
Complex Road, road improvement works at Al Rayyan municipality, consultancy services for roads at Garrafa and Al Rayyan. Projects within Al Khor
and Al Thakhira municipality include upgrading major roads in Al Khor and Thakhira towns and various road improvement works.

The projects to develop roads at Al Wakra include streets in the north and south of the town (zone No 1 & 4), upgrading roads in Al Wakra South, upgrading roads in northeast Wakra, road improvement works in Al Wakra municipality and consultancy services
for Al Wakra town. The list also contains several secondary road projects in a number of villages and offshore. Some of them are: road improvement works at Umm Salal municipality, construction of a road (C 2) in Al Kharitiat, upgrading roads in the south
and east of Al Kaaban; upgrading roads in Shamal town (first phase), road improvement works in Al Dahayin municipality and consultancy services for road development in offshore zones.

Projects on paper?

Eng Al Kabi also explained that the roads affairs of Ashghal include three major departments: projects, maintenance & designs. All the three departments
participate in the implementation of the projects mentioned so far.
He pointed to the existence of a large number of projects related to general traffic, maintenance of internal and external roads, street lighting, and all these are being implemented through the maintenance department. No one can deny the
efforts of the department in the maintenance of the main streets of the state, which fall within the functions and responsibilities of the Authority.

He said that the list of these projects also include establishment of an electronic control room (Greater Doha), the traffic maintenance works, land lines of the south of Greater Doha and beyond, improvement of traffic signals and renovation of old model street lighting.

On passing, Al Kabi also touched the public criticism that Ashghal projects just exist on paper, not on the real ground. He pointed out that this notion is due to lack of awareness, lack of knowledge on artistic culture and engineering, and lack of knowledge about the nature of road projects. The public may think that all these projects can be accomplished in a record time. Then they see the bad condition of streets in various regions of the state, some of them dilapidated and outdated as rain reveal flaws
immediately, whether they are major streets or streets within residential areas.

He added saying, “It is not fair to describe the projects as mere ink on paper. H E Eng Zayed Mansour Al Khayarin, board member and managing director of «Ashghal» has clarified earlier that 30% of the five-year plan projects have already been achieved. Many of the projects were embarked in the implementation and contributed to
the improvement and development of traffic in the State. Examples are Al Khafaji Intersection, Ahmad bin Ali Street, Airport main road, Ahmed bin Ali Street and dozens of other projects.

Work is also under way on a number of mega projects such as 22February Interchange and Al Amir Street, Industrial Interchange, D Ring – E Ring Interchange
etc. Virtually Doha city has turned out to be a huge workshop. Wherever on the street you find projects implemented by Ashghal, not just in roads sector but in drainage and building sector too. He added saying that the value of project contracts completed
since its inception until last May amounts to more than 10.7 Billion Qatar riyals.

Here, Eng Mohammed Jamal added that the department has completed a number of projects such as Al Khafaji Street. A number of projects are soon to be implemented in Al Rayyan, Al Manasir, Al Murra West, Salah al Din Street and Al Khor Corniche Street. Works have also started for implementation of Meseimar road project costing 277 million Qatari riyals. The project is located in Zone No 56 and connects Halul Street
with Wholesale Market Street from the South East. This project also includes extension of pipelines for surface water and groundwater, which are found in excess in the state with a diameter of 3 meters. Another importance of this project is that it connects F-Ring road and Air force Roundabout. The department has also started some other projects
in the areas of New Salata and Al Hilal comprising all infrastructure services.

He also pointed out to the starting of works of the project «Al Duhail Street Extension», which is located along the border of Qatar University. The importance of this project lies in linking the northern areas of the state with its western areas, whereas now the residents of northern area can pass to western side only through Doha city. Then he turns attention to one of the major projects executed by the section, which is to upgrade and improve roads at Muaidher area, where the project is cast for tender. The implementation is expected to start this year itself.

Eng Jamal Shareeda Al-Kaabi also remarked, “Exposing these projects before the public does not mean pleasing them; it is due to the policy to have a communication with the public, because they do reserve a right to know about Ashghal projects.” He acknowledged that the road projects are delayed and clarified with all transparency «Yes, most road projects are late,» adding, «But due to uncontrollable reasons and circumstances,» stressing that «we do not absolve ourselves from responsibility ... and we do our best efforts for coordinating with all service departments for the comfort of the public.» He explained that «Ashghal» is re-establishing infrastructure in the state. In the implementation of a road project, almost 50% to 70% of works are infrastructure related. The work is not just to prepare the ground and putting layer of asphalt and footpaths. These works do not require a long time. Nevertheless, the problem lies in the re-establishment of all infrastructure services like electricity lines, water pipes, telephone lines, sewer systems, groundwater and surface water, in addition to some security services.

Addressing the public he said, «Like you, we also suffer from traffic jams due to delayed projects, but let us expect the best to come» and asked «Why don’t we suffer a few years to relieve more, and to serve future generations?»

“One reasons that has contributed to delay in the implementation of road projects is the acute shortage of raw materials and the sudden rise in their prices, emphasizing that the delay in project implementation is not limited to the Authority, but to many other state institutions. However, the public focuses on Ashghal because it is closer with
them. There is not a single house in Qatar without a connection with «Ashghal» projects.. There are many mega projects to be implemented by Ashghal, but lack of contractors on one hand and paucity of raw materials on the other leads to the delay in their start-up.” He commented.

The manager, however, explained that Ashghal does not stand idle; it has sought to address the obstacles and problems and works out for solutions. “For example, we have begun working on several projects in a single package so that we can attract international companies for their implementation. These companies are not willing to work in the projects that cost less than 100 million or 200 million Qatari riyals. They are attracted by major projects such as the upgrading and improvement of Muaidher road, where we have cast tender to domestic and international companies alike in one
package or one phase. Whereas, previously we were implementing the projects calling tenders for phases one after another.”

Al Kaabi also acknowledged that what is being implemented today could have been done years ago, but people should not blame its responsibility on Ashghal. It is a recent institution started to implement its five-year plan nearly two years ago.He said the issue now is not that why these projects were not implemented before, or why they are implemented at a time now. But the issue is that the State in the stage of accelerated growth needs a rapid development in the infrastructure sector and the Public Works Authority has been established to achieve this goal.

“The public seems to have believed that «Ashghal» was established many years before while the truth is the opposite. It started functioning formally on 1st April 2005, and within a short period, it was able to implement several large-scale projects efficiently and shortening the timings.”

In the end of the talk, Eng Al Kaabi stressed the role of media in raising public awareness on Ashghal projects and its positive impact on the future. He lauded the media for publishing the official statements of Ashghal, and their positive contribution to promote Ashghal projects.

However, he expressed reservation to the act of some media who transfer observations and public complaints related to the functions of other bodies to the responsibilities of «Ashghal,» which misleads the public. Citing an example, he pointed out to
the infrastructure related excavations in various regions of the state. The public believe that all theses excavations are for Ashghal, whereas other bodies such as Kahramaa, Q Tel etc also have similar projects. During rainfall, cracks occur on the streets, especially in residential areas. Although the responsibility of maintenance of these streets is with
the municipalities, everyone blames Ashghal for it. Al Kaabi agreed that implementation of road projects at this time would lead to overcrowded streets and the volume of traffic jams will increase. This itself necessitates the need to speed up the process of expansion of roads, bridges and tunnels, various interchanges in order to develop a better road network that cope with the economic growth and urban population in the state. He then asked «which is better: suffer from traffic congestion for temporarily or for ever?» pointing that the recently achieved projects such as Ahmed bin Ali Street,
Suhaim bin Hamad Street, Airport road and Al Khafaji Interchange has contributed in streamlining traffic. Successive completion of other projects would save the purpose better.

Al Kaabi also called columnists to address issues related to the Authority accurately and objectively. Many writers ask Ashghal to complete the projects, which do not fall under its domain. The Public Relations Department is communicating with those writers to clarify the functions and responsibilities of the Authority, so as not to fall into confusion,
and thereby convey wrong picture of Ashghal to the readers.

In conclusion, the manager of projects department of roads affairs comments: “History shall remember all who contributed to the development and improvement of the road network. However, these contributions do not confine only on the engineers
of Ashghal, but also on executing companies, workers, in addition to the other service agencies such as Kahramaa, Q Tel, Woqod, customs & ports, Ministry of Interior, especially traffic department and ‘Lakhwiya’ internal security force.»

Read more here:-

http://www.ashghal.gov.qa/English/Ashghal/Ashghal_Magazine/Documents/ashghal%20%20E%204.pdf

Arabian BUSINESS.COM - NEWS

Qatar reworks contracts to cover price increases

by Angela Giuffrida This email address is being protected from spam bots, you need Javascript enabled to view it on Saturday, 26 April 2008

Qatar’s Public Works Authority (Ashghal) has said it will start including price escalation clauses in its contracts.

Qatar's Public Works Authority (Ashghal) is revamping its contract system to include price escalation clauses to help contractors cover the cost of raw material price fluctuations.

The move comes as soaring costs continue to cripple the construction sector across the GCC.

The country's electricity and water operator, Kahramaa, implemented a similar clause towards the end of 2006.

According to Mish'al Dhanim, project manager with Ashghal, the move should help to attract more bidders for the authority's projects. "When the new contracts are ready, the clause will be there," he said.

"Contractors' costs have gone up by more than 40 to 50% of the original estimate - so the price clause will bring this down.

If contractors need items like steel, concrete and sand, we give them the paperwork and they go and get it from the concerned factories - so they don't need to worry about paying for delivery; if the prices go up, the government will take care of it.

Construction firms in Qatar hope other government authorities and private firms will adopt a similar strategy.

"We're hoping the others will follow this example, which would give us breathing space. This is very important for us," said Kayihan Bagdatli, general manager of Nurol Machinery and Steel.

"The government has to protect the construction companies who are here with goodwill and commitment, and who believe in the future of these countries. Companies like ours should not be penalised for taking unforeseen risks which are out of our control.

Bagdatli added that the cost crisis is creating discomfort among contractors in the country.

"Oil and gas prices are increasing. And some portion of the cost increases in steel, for example, is mainly through transportation," he said.

"But somehow, private clients are not willing to give price differences for things like cement, rebar and steel parts, particularly in turnkey contracts.

"We hope private clients and the government will look into this and start giving material price difference payments over a period of time, which would contribute a lot to our activities here. Otherwise, we'll just put the risk on the price, which will again cause inflation."

Finding solutions to Qatar’s rising costs

by Angela Giuffrida This email address is being protected from spam bots, you need Javascript enabled to view it on Saturday, 26 April 2008

The Qatari government is taking steps to better protect the country's thriving construction industry.

While soaring construction costs continue to blight the sector's growth in the UAE and across the Gulf, the one GCC state that probably feels the pinch of the crisis more than any other is Qatar.

This is due to several reasons. Firstly, Qatar's dependence on imports - from essential raw materials and equipment, to workers - has meant the country's inflation is among the highest in the GCC.

The lack of locally developed resources means that aggregates used on projects in Qatar have to be brought in from other countries in the region, which is placing a massive strain on port capacity and the supply chain.

The government has to protect the construction companies who are here with goodwill and commitment.

Secondly, increases in the cost of those aggregates have hit Qatar hard. The price of aggregate in the country reached US $30 (QAR 109) a tonne by the end of 2007, compared with around $22 at the beginning of the year.

Thirdly, like other developing economies in the region, Qatar is facing serious shortages of labour, which is largely compounded by the government's tradition of protecting local companies by limiting the number of major players in key sectors such as construction.

Attracting workers to the country has also forced companies to pay higher than average salaries.

But with infrastructure development being crucial and a plethora of real estate projects either under way or on the drawing board, the Qatari government has taken steps to better protect the construction firms that are going to be key to the country's future growth.

Qatar's Public Works Authority (Ashghal) is currently revamping its contracts to include a price escalation clause for its civil works projects.

A similar move was made by the country's electricity and water operator, Kahramaa, towards the end of 2006.

"With the system being new and not many people knowing about it yet, it's difficult to say what the advantages or disadvantages might be," said Mish'al Dhanim, a project manager with Ashghal.

"But it can only benefit the government and contractors. Contractors' costs have gone up by more than 40 to 50% of the original estimate - so the price clause will bring this down.

"If contractors need items like steel, concrete and sand, we give them the paperwork and they go and get it from the concerned factories - so they don't need to worry about paying for delivery; if the prices go up, the government will take care of it.

The move has certainly been welcomed by construction firms operating in Qatar.

Nurol Machinery and Steel has been doing business in the country since 2003, and has since made a further investment by setting up a local manufacturing base for its products, which is due to come on stream later this year.

"The price issue is a headache for all of us," said the company's general manager in Qatar, Kayihan Bagdatli.

"But this is a worldwide problem for steel. Here, almost all the projects are on a turnkey basis. So when we give our quotations we take the unforeseen risks the future may bring regarding steel prices.

Bagdatli added:

"But there are two elements to the current situation. One is finding the right material at the right time, while the other is getting a good price. Unfortunately, the steel that we need for the fabrication of our products in the local market is very hard to find in Qatar.

"Around 50 to 60% of our material comes from the UAE, or through the UK, Europe or the Middle East. Importing material from the UAE to Qatar takes about a week, while from Europe it takes around a month.

Bagdatli hoped other authorities and private clients would also adopt price escalation clauses.

"The government has to protect the construction companies who are here with goodwill and commitment, and who believe in the future of these countries. Companies like ours should not be penalised for taking unforeseen risks which are out of our control," he said.

In July last year, the Qatari government passed a three-year-law exempting imports of gravel,steel and cement from customs duties.

But the law only applies to materials imported from outside of the GCC. It covers eight types of cement including white cement, clinker and cement used in waterfront projects along with five types of steel, including rebar.

"Contractors here haven't had the best of experiences over the last couple of years, with rising prices, especially for cement, rebar and steel, and they've all been on fixed-price lump sum contracts," said Graham Wright. Gardiner & Theobald Middle East.

"Taking the duty off is one step - but it doesn't make it any easier for the contractor. It should cover all products that are imported, such as aluminium, timber and panelling.

Another area of construction that would also benefit immensely from a price risk clause is the country's energy projects.

The discovery of the North Field - the world's largest non-associated gas field - in 1971, has put Qatar on the world map and given rise to massive investment in energy projects in the country, specifically LNG.

In turn, this has created focussed opportunities for international engineering, procurement and construction (EPC) contractors, but fluctuating materials markets have created unique challenges for those committing to long-term projects.Some private firms have agreed to price escalation clauses on certain projects.

One EPC contractor, who did not wish to be named, said: "In general, offshore projects in Qatar are undertaken on a lump sum type of contract model, and in an EPC contract, materials and subcontract orders may only take place a year after contract award.

"Contractors have to be aware of the potential pricing risks when tendering for this type of project, especially given the highly volatile pricing conditions that exist within the market at present.

"We have, on a number of projects, agreed materials escalation clauses in our contracts - such agreements are beneficial not only for the contractor but also for the consumer.