A REFLECTION: THE CROOK, THE SAINT AND THE SWISS WATCH
For a long time, the contractor has been seen as a crook, the engineer as a saint and the owner as a Swiss watch. This approach may have not contributed to the best running of construction projects. An analysis of its background and a search for alternatives may be useful.
International construction projects have been based in the past on the assumption that there was a crook (the contractor), a saint (the engineer) and a Swiss watch (the owner). Apart from this exaggeration of their characters, the roles played by the parties were creating unnecessary difficulties for the execution of the works which conflicted with the rule that this train must never stop. A search for an alternative is made below.
During the last century, international construction projects have played a very important role. Real cathedrals in the desert have been built, including dams, autoroutes, airports, bridges and skyscrapers.
All inclusive price
As many of these projects were being built by means of public procurement, the owner was looking for a precise budget of the costs involved and consequently was asking bidders for a lump sum price. This allowed public bodies to have the costs of the planned infrastructure approved and covered by the State, or local, budget.
The lowest bid
The choice of the contractor had to be made in compliance with the transparency required for public procurement. This produced the result that the lowest bid would succeed, because in this way an objective criterion would prevail, avoiding any doubt as to roles played by subjective criteria or any other possible influence. These two requirements on the owner’s side make sense. They contain, however, the seed of serious difficulties which, as it is well known, has affected construction projects.
The all inclusive price formula required the contractor to budget all its costs and its profits but a contractor doing a proper estimate would have to include a lot of items, as well as a reserve fund for unforeseen and unforeseeable costs, legal fees, for taxes, tax consultant’s fees and so on, since all such items would affect their estimate. One must add to this that the rule that the lowest bid would be selected, forced the contractor not to include or to underestimate several classes of costs.
The negative side
The frequent result of this was that, during the execution of the works, the contractor discovered that their costs were higher than their estimate. This gave rise, as is well known, to efforts of the contractor to save on certain works, to claim additional costs and to try to make the most out of variations. These effects were opposed by the engineer and gave rise to disagreements and to disputes.
Supervision and interference
The public body, being the owner, was generally not adequately equipped to supervise the works. It had then to rely frequently on a consultant engineer to carry out such a task.
Alternatively, it appointed a senior member of the technical staff of its Ministry of Works.
In both cases the engineer has developed a tendency not just to supervise, but to make decisions which affected the works. Many contractors saw that as an interference. The engineer occasionally wanted to impress the owner by being hard on the contractor.
That gave further rise to lack of cooperation between the engineer and the contractor. The engineer frequently had good weapons for imposing their decisions, among which their right to eject the contractor’s site agent if he was objecting to their decision or even just to their philosophy. This was the second major disturbing factor during the performance of the works.
Responsibility for decisions
One might reasonably take the view that decisions belong to the owner and generally to their engineer. This, in principle, is correct.
However, the circumstances may produce different results. First, some decisions are not delegated to the engineer and if they are made by the engineer, the owner may refuse to accept their consequences, as has occurred in the Apapa Road litigation in Nigeria. Other decisions involve technical issues, which are open to debate and in which the engineer may be less competent than the contractor.
An example of this might be whether one may continue works on a layer of concrete which has been poured or one has to wait for it to dry further.
Other decisions inter fere with the organisation of the works by the contractor and with the contractor’s own organization and amount to an interference with the contractor’s right to organise himself as he sees fit.
Eventually, in making some decisions, the engineer may unconsciously not be objective and not acknowledge an error in their drawings. This is a cause of the tendency which has developed to separate the task of designing the project from the task of supervising the execution of the works.
Having said this, there is a tendency to believe that the contractor must bear the consequences of the engineer’s decisions, even when the decisions are wrong. This is in conflict with the fundamental rule that the party which makes a wrong decision must be liable for it.
Independent role of the engineer
The general premise is that the engineer is always able to be neutral between the owner and the contractor. In consequence of this, he has been granted in several standard conditions of contract the authority to conclusively construe the contract and to issue conclusive certificates. It is submitted that this cannot be right, since the engineer is appointed and paid by the owner. The old saying goes: ‘He who is paid by the King is a man of the King.’ The engineer is then the agent of the owner and he frequently carries out these duties quite properly.
Bonds on demand
The owner is entitled to receive a guarantee that the contractor will perform under the contract. The traditional practice that he deposits a cash security with the owner has been replaced by a bank guarantee. In view of the time which has to run if the call on the guarantee is disputed, the advisers to the owner have recommended that he asks for an on demand performance bond, callable unconditionally. The temptation to call it abusively has not always been resisted by owners and some of these calls have been and are challenged.
The premise of some construction projects
This is why it is suggested that some construction projects are based on the assumption that the players are a crook, a saint and a Swiss watch. The description of these characters is exaggerated on purpose, to make them clearer.
The crook: the contractor is presumed to be unreliable, and is suspected of misbehaviour.
The saint: the engineer is expected to be able to make fair decisions even if they are against his/her master.
The Swiss watch: the owner is presumed to behave like a Swiss watch, always on time in its performance, such as the delivery of the site and payment of certificates (even though that does not always occur).
It is submitted that the allocation of these presumed roles (even if exaggerated) to the parties to a construction project may negatively influence the execution of the works, and is not necessarily in the general interest.
Parties and their advisers have realised the need for a more objective approach. For a few years now, partnering, that is the attempt to create a team spirit among the parties to the project, has been popular. It is, however, an evangelical hope more than a certain remedy.
In fact it requires the good intentions of all the parties, which are not easy to create in practice.
Costs plus fee formula
The costs plus fee formula has been advocated, inter alios, by this writer. It consists of granting to the engineer the authority to make decisions and to control costs, the contractor confining himself to executing the directions of the engineer and collecting the agreed fee. It is submitted that this should avoid disagreements between the engineer and the contractor and de facto give rise to a team spirit. One objection raised to this that the engineer would not be able to manage the situation. This view may not be shared since if the engineer is able to supervise the works, to make certain decisions and even, according to some, to be impartial, he should be able also to manage the works.
Joint appointment and payment of the engineer
A further alternative which is suggested, is to keep the present structure of roles, but that the engineer be jointly appointed and paid by the owner and the contractor. That would create a genuinely impartial engineer to work in the interests of both the owner and the contractor. This would not impose on the engineer the impossible task of being a saint.
A performance bond from the owner
Non payment by the owner of due and payable certificates is unfortunately common; the Swiss watch is not always on time. The reason for this may range from lack of funds to an expression of dissatisfaction with the contractor. If the purpose is to balance the relationship between the parties, even in this respect, the owner should provide a performance bond. It is submitted that both bonds should be conditional and that the formula of Fast Collectable Bonds which was presented by this writer in 1985, in Washington (when he was chairing the International Construction Committee) and which has been put into practice by his successors, through a possibly too detailed standard form, should be considered.
These issues – which are fundamental to international construction projects – cannot be resolved in a magical way. These thoughts are therefore submitted merely as a contribution, and as an invitation to develop them.