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During and construction projects, there are various risks assumed by different teams associated with the projects; such as by the owner, design teams and contractor. These risks include fatalities and injuries to construction workers, mal- functioning, material lost, thefts, breaks etc. Reviewing various strategies of insurance programs can be highly beneficial for the overall project, as selection of an optimum strategy can result in various benefits for Aldar properties in this project.
Insurance is generally acquired to address these risks, at least to a considerable degree (David, 2005). Traditionally, insurance programs / coverage are gained separately by each of the parties included. However, there are various other considerable alternatives to this strategy for obtaining insurance, such as the insurance coverage for a whole project by the prime contractor or the client. But the question that needs to be addressed here is;
What are the strengths and weaknesses of these alternatives?
The Owner Controlled Insurance Programs (OCIP) is utilized to provide insurance coverage to the whole construction project through a single insurance policy. As opposed to the traditional method of obtaining insurance, this type of insurance is acquired for all contracting parties under one combined insurance program provided by one insurance carrier (Bukowsk, 1996; Lenckus, 2008).
The choice of the kind of insurance programs, such as a contractor controlled insurance program (CCIP), OCIP, or conventional insurance policies, for the most part, is based upon the expenses and profits connected with types of insurance coverage. This study will inspect and summarize the pros and cons of the OCIPs with respect to Al Rahaya project.
Controlled insurance programs are more prevalent in the construction business. Conventional insurance coverage goals are aimed to diminish accident rates, decrease the quantity of injuries, avoid damage to property, and keep up with the time schedule of construction activities (David, 2005). In the scenario when all contractors acquire conventional insurance coverage and incorporate the expenses in their bids, there is a considerable risk of duplication of coverage and abundance expenses, which eventually will have to be assumed by the client Aldar in one form or another.
The key principle of the OCIP is that the Aldar will acquire insurance coverage as stipulated in the agreement documents for the whole Al Rahaya project. OCIP is particularly intended to protect the owner, design teams, the prime contractor, and all levels of subcontractors. Depending upon the structure of the OCIP, the Aldar properties will be in charge of making insurance installments directly to the insurance provider giving the coverage (Lew et al., 1999).
The most prominent advantages of having and OCIP in this project for Aldar are;
- Reduction in potential expenses via purchasing insurance in bulk
- Reduction in potential expenses through bypassing contractor markups, which must be reflected in the bids received
- Acquiring more extensive insurance coverage and higher coverage limits, due to the high prices involved
- Eliminating loop-holes and duplication in insurance coverage
- Increasing participation of minority subcontractors, and
- Provision of making claims more productively, lessening potential litigation, improving workplace safety, wiping out disputes among insurance organizations and gaining premium returns for probable unwanted events
As insurance rates are rising, the utilization of OCIPs is getting to be progressively more common on large construction projects such as this large residential development project. While Aldar may save money and enjoy other efficiencies through this program, a few analysts caution that OCIPs can be at disadvantage in some particular situations (Grenier, 2004). The significant disadvantages of OCIPs are;
- Expanded expenses of administration
- An unclear savings strategy on insurance, as it includes an extensive scope of works from various project teams, for which the entire scope expected works is unclear at the time insurance is purchased
- More complex bidding methods, as it includes adaptation of insurance policies
- Likelihood of a contractor with a good security record losing the offer to a contractor who is less safety conscious, especially if the bid process does not consider theses parameters
- Furthermore, there can be a decline in the exposure level of subcontractors bringing about a reduced capability to secure ideal construction standards, and perceived insufficient mitigation strategies / measures and safety incentives by the contractor (Grenier 2004; Nilsson 2003).
Therefore, it is extremely important for Aldar properties to critically review the OCIP approach and devise a method which can address the possible disadvantageous situation which may arise through adaptation of this approach. Although OCIP is a balanced and cost saving insurance methodology, consideration must be given parameters such as safety, administration and consciousness of the bidding process, especially with respect to the construction phase of the project. If these concerns are address properly, OCIP can bring considerable advantages for Aldar properties in this particular project.
Question 2: Lump-sum Fixed Price Construction Contract
A fixed price contract, which is also called a ‘stipulated sum agreement’ or simply a ‘lump sum’, is a well-known procurement strategy for a construction project. A fixed value contract is most suitable for a project where the owner through design teams and consultants have sufficiently completed the outline plans, drawings, planning approval has been granted, and other construction related data, which is the case in this construction project of Al Rahaya. The provision of this data by Aldar has allowed the contractor China State Construction Company (CSCEC) to provide a sensibly accurate estimate of the costs and time of the project. Although the CSCEC Company has agreed to complete this project within the allocated budget and time, a better approach could be to include other major contractors to participate in the bidding process. The project related details can be shared with major construction contractors to receive numerous bids which can be competed against each other, and then the construction contract can be awarded to the lowest price and most dependable and responsive bidder. This delivery method for the project is usually called the "Design-Bid-Build" (Masterman, 2002).
Since Aldar is considering to award this project CSCEC, some of the important factors must be critically analyzed before taking the final decision. From a viewpoint of the project manager, a fixed-price contract has the benefit of constraining exposure and risk associated with the expenses of the construction process; thus more risks are assumed by the contractor. With the exception of any unforeseen circumstances, changes to the extent of the work, or different circumstances that may be put forward in the agreement, the CSEC contractor shall be committed to finish the work for the settled upon contract sum. Converse to this, Aldar shall not be needed to pay for any of the contractor's expense overwhelms.
On the other hand, because of the fixed methodology of the agreement, the subject contractor may have included a ‘risk possibility in their offer’ (e.g. in the form of contingencies) so as to shield themselves from any cost overruns and/or other different conditions that will not be refunded by Aldar. Therefore, Aldar construction may end up paying more cash to the contractor in case of those possibilities do not occur and the contractor has the chance to finish the project for a sum lower than the agreed bid amount.
This conventional design-bid-build approach with lump sum pricing may present other potential issues for Aldar Construction. Consider a situation where the design group along with consultants and QS may not have accurately estimated the current construction expenses, constructability issues or different components that may oblige an upgrade and/or decrease to the project scope of works. Thereafter, the project may experience delays in the project timeline as the designer group modifies the construction plans, keeping the contractor from progressing with the work. This may also lead to disputes during the construction phase of the project (Graham, 2010).
Lump-sum fixed price may likewise cause an indirect drop in the general work quality. In the event that a contractor is committed to finish the project for a stipulated sum and will be responsible for any extra expenses, it may procure a "less expensive is better" attitude. The CSCEC contractor may choose to pick a low rated subcontractor who may not even be familiar with working in UAE. Accordingly – although not necessarily – the nature as well as of the work on the task may be affected. This is issue seems to be even more significant as the CSCEC has put forward a condition of using Chinese materials, equipment and plants for this project. This condition may rule out any plans by Aldar of providing local content in material’s supply chains, any may also present a risk of low quality construction for this residential development project.
Therefore, it is recommended that Aldar considers an alternate approach, i.e. to undertake the traditional bidding process where various other major contractors may take part in the bidding process, so as to compare the prices and conditions of other vendors. And in-case Aldar intends to award this project to CSCEC, contract clauses must then be incorporated to ensure that any design variation shall be accommodated by the contractor (as advised by design/consultant/QS teams and agreed by the contractor) and that the ‘quality of materials’ as well as ‘construction methodology’ to be used are not compromised. A bill of quantities with detailed specification may be obtained from the CSCEC to review the details / quality of materials along with the plants and equipment the contractor intends to use for this project. This shall than be approved before the contract is awarded.
Aldar Properties construction believes in establishing highest possible ethical standard for their construction projects (Project handout, 2015). Moreover, as per the jurisdictions and legislations of the UAE government, it must be ensure that Aldar behaves ethically during the complete course of this residential development project at Al Rahaya. Therefore, it is important to develop an ethically responsible strategic programme that must be followed to ensure optimum standard of ethics.
Unethical conduct hinders healthy rivalry and affects the monetary condition and notoriety of the business. At the point when one contractor chooses shortcuts of doing things or performs work of low quality, they put the rest of the project teams at a loss, and deceive the trust of the owner. Ethical violations additionally have grave consequences for quality and safety – utilization of materials that are not specified or finding and exploiting shortcuts in the system can compromise structural integrity in the long haul (Barber et al., 2000). Therefore, ethics must be considered as a characterizing factor for the construction as well as in administration of this project. Driven to some extent by administrative pressures, ethics programs are picking up importance within firms, the leaders of which have made it a need, and also through other parts of the industry, upheld by different associations and local laws. The Aldar group will consider ethics in this project with the same importance as that given to essential safety standards
There are various approaches which Aldar can implement to suppress unethical conduct and practices for this project. In order to move towards consolidating and enhancing project management with respect to ethics, along with risk management and compliance, a specifically engineered program has been proposed to be developed for Aldar. Integration of human resources management with ethics program can offer real benefits, and therefore this must also be considered in this programme. Elements such as honesty, integrity, ethics and fairness are some of the most fundamental aspects must be covered in the proposed ethics programme. A mix of ethics, compliance policy and a code of conduct, in a form of a yearly program shall be developed for implement by Aldar. The proposed ethics programme / policies will incorporate the following fundamental aspects;
- Standards of confidentiality
- Conflicts of Interest,
- Antitrust policy
- Asset protection of company
- Information related to procurement policies / integrity
- Details of ownership, patent, UAE government legislations,
- Details / examples of corrupt practices, and
- Environmental / standards along with other compliance and discipline requirements
This detailed programmed / policy developed for Aldar will be signed by every human resource assumed in this project. Further regulations / obligations regarding related to findings and reporting unethical practices shall also be implemented. Moreover, it is suggested that Aldar must execute this ethics programs at their own particular command, as assuming the responsibility is still an imperative part to ensure optimum implementation. Incorporating different feedback systems with this program will enhance the productivity of this process; therefore the following strategic measures are also proposed to be included along with primary policy;
- An open door approach for every person/team associated with this project
- Hotline for raising concerns and/or reporting
- Risk assessments
- Self-report measures, detailed reviews and internal audits
All these aspects can prove to be influential additions for Aldar’s ethic programme. This programme will be developed after consolation with the representatives of the local governments, Aldar’s management, design teams and consultant teams. It will be ensured the feedbacks of these teams are carefully reviewed and a model programme is proposed for client’s (Aldar) approval. Once approved, Aldar shall then implement this ethically responsible programme. It shall also be insured that repercussions for infringement of the ethics policy is as clear as the policy itself. The group must also take the lead in this regard; therefore it is advised to run ethics training programs on periodic bases. For successful implementation of this programme, an independent internal audit mechanism shall also be developed by Aldar for Al Rahaya project.
One thing that can be quantified in terms of an expense is the quantity of complaints made by workers that go beyond the internal resolution processes and consequently result in formal charges. By provide the human resources of this project with required training and counsel, Aldar can attain the capacity to diffuse possible litigation and the high costs connected with it (Miller and Osinski, 2002). This ethics programs can give a clear connection between operational accountability and corporate culture. By incorporating this system as more than a mere formality, this engineered ethics programme can give a chance to augment the overall performance of the Aldar Company.
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