Need for Clarity: Tackling contractual and project management issues

Tackling contractual and project management issues

Dredging contracts in India lack standardisation and broadly rely on guidelines provided by the International Federation of Consulting Engineers (FIDIC). So far, contracts have mainly been tailor-made to suit the specific requirements of the employer or contractor. Most of the project tender documents are not comprehensive, leading to information asymmetry between the contractor and the employer. However, contract practices are slowly evolving based on the changing needs and requirements as well as with the growing experience of private players.

For the effective formulation of a dredging contract, it is necessary to conduct several studies including bathymetry and geotechnical investigations. It is also important to factor in the contractor’s experience from previous works.

Types of contract

The type of contract is selected keeping in view the magnitude of dredging works to be undertaken, site conditions, dredging techniques to be used, complexity of work and the preference of the owner. The basic types of contracts are fixed price or lump sum contracts, cost-reimbursable contracts, time and material (T&M) contracts, item rate contracts and turnkey contracts.

Most of the major port authorities though, award dredging activities on the basis of tailor-made FIDIC documents, which defeats the very essence of tendering and contractual principles.

Other key challenges involved in the dredging contract design and implementation process include the long gestation period between the notice inviting tender and the award of work, an unwillingness to share risk and liability equally, unwillingness to include contractors at the early stage of tendering, clipping the powers of the engineer/engineer representative and formulating new contract models without testing them prior to implementation.

Role of PMCs

The role of project management consultants (PMCs) entails the selection of a proficient contractor on the basis of the “best-suited” qualification criteria. According to the Standard Operating Procedure, 2015, both quantity and value-based criteria need to be considered. As per Central Vigilance Commission guidelines, the experience of undertaking similar dredging works during the past seven years is an essential selection criterion. This experience should include either three similar works (each not less than 30 per cent of estimated cost/quantity of the work put to tender) two similar works (each work not less than 40 per cent of estimated cost/ quantity of the work being tendered) or one work (of not less than 60 per cent of estimated cost/quantity of the work being tendered).

Project monitoring includes conducting pre-dredge, post-dredge, intermediate and additional surveys, ensuring minimal/no hindrance to port operations, tracking disposal of the dredged material, and supervising the contractor in all matters pertaining to labour safety. Further, the PMC is also responsible for scrutinising the contractor’s construction methodology along with ensuring timely completion of the dredging work, supervising compliance with the conditions of different stakeholders as well as the contract document, monitoring the progress of work regularly, minimising and monitoring risks, and monitoring payment to the contractor. Usually payments are linked to quantity based on the pre- and post-dredging depths, guaranteed depth, hopper measurement of the dredger and daily hire charges of the dredger.

Risks in dredging contracts

Dredging contracts can encounter many risks. Inadequate investigation and inaccurate quantity estimation can lead to an increase in dredging costs and have contractual implications. Further, the downtime of the dredging equipment could increase due to excessive wind speeds, wave heights and current velocities.

Risk sharing

The dredging contract should clearly define the risks and responsibilities of the contractor and the employer. The siltation quantities and siltation rate should be declared by the client at the time of formulating the contract document. The contractor should deploy suitable and efficient dredgers and ensure optimal production.

Challenges in managing dredging projects

Discrepancies in the soil type/conditions stipulated in the tender documents and the material actually encountered is an issue which can be avoided by proper soil investigations and the correct interpretation of surveys. Another key issue is the change in environmental conditions, which can be tackled through proper site investigations and making accurate data available to the contractor.

Conclusion

Despite refinements in the contracting process by factoring in past experience, issues and concerns arising from the non-standardisation of contracts and the very nature of dredging operations, still remain. To address these issues, initiatives should be taken to incorporate the Foundation for Comprehensive Dispute Resolution’s recommendations on contract agreements into the contract document. Besides, allocation of risks and responsibilities between contractors and employers need to be clearly defined at the time of contract formulation.

Based on presentations by D. Bose, Group Sector Head, Ports and Transportation, Tata Consulting Engineers, and Dr G.Y.V. Victor, President, Mercator, at a recent India Infrastructure conference