www . refrigerationandaircon . co . za RACA Journal I October 2023 9
Associations of quality issues , and contractors , in particular , find it challenging to secure full payment promptly . To illustrate the impact of change orders , consider a scenario where a crew encounters an unforeseen problem at a job site . They call upon their field managers , superintendent , and eventually , the engineer to address the issue . Meanwhile , work halts , and productivity declines as the highestpaid personnel shift their focus to troubleshooting rather than their designated roles . Only after the engineer resolves the problem can the crew resume their original tasks . This situation begs the question : What does the owner intend to pay for ?
Typically , owners expect to pay for the fixed scope of work outlined in the original contract . However , when change orders arise due to unforeseen or unknown conditions , accurately valuing these changes becomes challenging . Contractors prefer resolving issues through means other than change orders due to the difficulty in receiving fair compensation . Therefore , alternative mechanisms such as shared contingency funds , bonds , and warranty reserves can help account for unforeseen circumstances . By considering potential change orders in project planning , engineers , contractors , and manufacturers can better prepare themselves and negotiate for full recovery .
CREATIVE NEGOTIATIONS CAN RESOLVE Creative negotiation strategies can play a crucial role in ensuring favourable outcomes . For instance , on a massive wastewater treatment plant project worth USD700-million , an unforeseen issue arose when Native American remains were discovered , halting progress and triggering potential disputes . One contractor proposed a solution : forward pricing the additional labour required for resolving such issues . In exchange for waiving all claims , both parties agreed to include this forward-priced labour in change orders . This innovative approach allowed the project to proceed , resulting in successful completion ahead of schedule and under budget . Negotiation strategies like this can greatly contribute to resolving disputes effectively .
These issues are prevalent in the construction industry , not just in the United States but also in South Africa . It ' s unfortunate to hear that contractors are requesting upfront payments of such high percentages , ranging from 50-70 %. This practice puts an unnecessary burden on clients and disrupts their cash flow , forcing them to seek additional funding or take out loans to cover project costs . It ' s crucial for contractors to understand that it ' s their responsibility to manage their own cash flow and not rely on clients to finance their operations .
Lack of contract knowledge and poor estimating abilities are also concerning trends . Contractors should have a thorough understanding of the contracts they enter into , including payment clauses and change control provisions . Estimating should involve detailed breakdowns and clear explanations , allowing clients to assess the project ' s cost structure . Effective change control management is essential to address variations and ensure fair compensation for additional work . The concept of ranking clients based on their adherence to ethical standards , can be an effective strategy . Focusing on ‘ gold ’ and ‘ silver ’ clients who demonstrate a commitment to long-term relationships , meeting expectations , and shared ethics , can minimise ethical problems and enhance the success of one ’ s company . It ' s also recommended to establish key performance indicators ( KPIs ) for clients , enabling one to measure their performance and identify areas for improvement . RACA
www . refrigerationandaircon . co . za RACA Journal I October 2023 9