Construction Claims in Palestine

Transcription

1 UNIVERSITY OF BIRMINGHAM Construction Claims in Palestine By Mustafa Abedmousa (ID: ) Supervised By David J. Hoare School of Engineering Department of Civil Engineering MSc Construction Management Thesis submitted to the School of Civil Engineering, University of Birmingham In partial fulfilment of the degree of Master of Science in Construction Management August 2008

2 SYNOPSIS The construction industry in Palestine is the largest and the most important industrial sector. It has occupied a leading role in the economy of Palestine in terms of both its role in the generation of employment and income and its contribution to the GDP. The aims of this industry regarded meeting the population growth requirements and development have been plagued by construction claims and disputes causing delays and cost overruns. Thus the overall aim of this research is to identify the basis and the causes of these construction claims and disputes. Furthermore, it aims to identify the underlying management issues which need to be addressed in order to avoid or reduce the effects of the claims in the future construction projects in Palestine. To do so, the current situations of that industry are studied in detail based upon published literature. Moreover, contractor s construction claims from one project, which were analyzed based on the conditions of the project contract, the PSCC and the UK best practice in the construction industry, and a questionnaire survey and phone call interview with some Palestinian experts in the management of the construction industry were used to identify the causes of the claims and underlying the construction management issues. A detailed discussion and analysis are given of how the PSCC can be a basis and cause of construction claims. Additionally, some key principles of the NEC3 have been addressed as a method for improving the PSCC. The Israeli siege, work delay and the fluctuation in the price of construction materials were identified as the most significant causes of the claims in the Palestinian construction industry as indicated from the data received from the analysis of the questionnaires and the case study. These causes and other causes have also been studied in detail. The most significant underlying issues including the lack of experience, poor communication between contract parties and problem in the classification of the contractors have been identified and discussed in detail. Based on these discussions, recommendations for further future research on the Palestinian construction industry in order to avoid or minimize the claims and their effects on the construction projects are presented. Mustafa Abedmousa August-2008 I

3 ACKNOWLEDGMENTS The author wishes to express his gratitude to his supervisor, Mr. David J. Hoare, for his support, encouragement and patience throughout the course of this dissertation, as well as all the time shared with him in discussing the subject. The author is also grateful to his sponsor Hani Qaddumi Scholarship Foundation for their assistance and financial support throughout the course of the master s degree. He will always grateful to them for giving him the chance to achieve his dream since without them the author was not be able to continue his studies. The author would also like to express his sincere gratitude to all the contribution to this research, from the UK and from Palestine and particularly those who had given up their time to fill the questionnaires or to answer by phone his questions. In particular, the author would like to express his sincere thanks to Mr. Farouq Kittanti, Mr. Musa Jwayyed and Mr. Habeeb Imseeh for their invaluable help and guidance over the last three months. The author extends his sincere thanks to the Palestinian Economic Council for Development and Reconstruction (PECDAR) for helping him in the implementation of the case study. Finally, the author is grateful his mother and family in Palestine for their help and patience throughout the course of the master s degree. Mustafa Abedmousa August-2008 II

4 DECLARATION The author declares that, he was working to the Palestinian Economic Council for Development and Reconstruction (PECDAR) for the last two years as part time engineer. Moreover, the information used in the analysis of the case study was based on the point view of that organization. Furthermore, the author did not contact the contractor who carried out that case study project since he had pledged to PECDAR that he will not contact the contractor to see his point of view during the dissertation and after it. Mustafa Abedmousa August-2008 III

5 TABLE OF CONTENTS Synopsis Acknowledgments Declaration Table of Contents List of Figures List of Tables List of Abbreviations I II III IV IV X XI Chapter One: Introduction Statement of The Problem The Importance of the Topic Selection of the Topic Research Objectives Basic Hypotheses Research Methodology Literature Review Case study: Analysis of construction project claims Questionnaire Survey Phone Interviews Data Analysis and Discussion Conclusion and Recommendations Scope of the Dissertation Chapter One Chapter Two Chapter Three Chapter Four Chapter Five Chapter Six 9 Mustafa Abedmousa August-2008 IV

6 Chapter Seven Limitations of the Study 10 Chapter Two: The Construction Industry in Palestine General The History of Construction Sector in Palestine The role of construction industry in the Palestinian economy The Contribution of The Construction Sector to GDP Employment and The Construction Sector Gross Domestic Capital Formation and Construction Sector Parties related to the Construction Sector The Private Sector The Public Sector The International Funded Countries and Institutions Banking Sector Universities and Institutes Limitations and Challenges Housing and Construction Sector Finance Planning and Managerial Skills Israeli Siege Other Constraints Conclusion 32 Chapter Three: The Palestinian Standard Construction Contract (PSCC) Introduction The Features of the PSCC Book The Features of the General Conditions of Contract under the 34 PSCC The Features of the Particular Conditions of Contract under the 35 PSCC 3.3. The Clauses related to Claims from The PSCC Discussion of Certain Clauses of Particular Relevance to this Research 38 Mustafa Abedmousa August-2008 V

7 Sub-Clause Sub-Clause Sub-Clause Sub-Clause Sub-Clause Sub-clause Sub-Clause Clause Conclusion 43 Chapter Four: Construction Claims: Causes and Costs Introduction Claim Definition Classification By Type Classification By Subject Causes of Claims Suspension of work Variation Orders Differing Site Condition Project Delays Defective Specification and Drawings Force Majeure Disruption Financing Charges Fluctuations The Bad Weather Proof of Costs in Damages Claims Damages Suffered by Contractors Damages Suffered by Owners or Employers Extent and Applicability of Construction Claim in Palestine 52 Mustafa Abedmousa August-2008 VI

8 Chapter Five : Case study Introduction Overview of the Case Problems Identified from the Case Study Project The Value of Employer s and contractor s Claims Results and Analysis of the Claims Money Claims Claims concerning time Employer s claim Conclusions 92 Chapter Six: Questionnaire Survey on Construction Claims in Palestine: 93 Analysis and Discussion 6.1. Introduction Questionnaire Design Data Collection Results and Analysis Analysis of the data under the status of construction management in 95 Palestine Analysis of the data under improving the construction industry in 100 Palestine section 6.5. Underlying Management issues Conclusions 104 Chapter Seven: Research findings: Summary, Discussion, Conclusions and 105 Recommendations 7.1. Introduction Executive summary of the literature review Executive Summary of the Fifth and Sixth Chapters and the Research 107 Finding 7.4. Conclusions: The Validity of the research hypotheses Validity of the Data Research findings Recommendations for future studies 115 Mustafa Abedmousa August-2008 VII

9 References 117 Appendices 124 Appendix A-Research timescale 125 Appendix B- Phone interviews 127 Appendix C- Palestinian classification instruction for contractors working in 138 the construction field Appendix D-PSCC and PECDAR(2004) 140 Appendix E-Data collection for the case study 142 Appendix F- Data collection for the questionnaire survey 154 Mustafa Abedmousa August-2008 VIII

10 LIST OF FIGURES Figure 1-1: Flowchart of the research methodology 6 Figure 2-1: Labour forces employed in the construction industry in Palestine for 17 different years. Figure 2-2: Funds Distributed to different sectors in Palestine between 1994 and Figure 2-3: The Percentage of the Palestinian Losses in the Construction industry 28 in 2000/ Figure2-4: The Estimated Amount of the Contractors Firm s losses in Palestine for 29 the year 2001 Figure2-5: The Amounts of each type of the indirect losses 30 Figure 5-1: Comparison between the contractor s, the author s and the engineer 85 estimations for extensions of the completion date claims Figure 6-1: Causes of the delays in the construction project in Palestine 96 Figure 6-2: Claim causes and their percentages 98 Figure A-1: Timescale of the construction claims in Palestine research 126 Mustafa Abedmousa August-2008 IX

11 LIST OF TABLES Table 1-1: Summery of literatures that discussed different topics in the 3 Palestinian construction industry Table 2-1: Distribution of GDP by main sectors in Table 2-2: Number of the contractors distributed in the cities in the West Bank 19 Table 2-3: Number of the contractors distributed in the cities in Gaza Strip 19 Table 3-1: The Clauses related to Claims from FIDIC /38 Table 5-1: Detail information of Kuwaiti Specialized Surgery Hospital 54 construction project Table 5-2: Analysis of the financial claims based on the contractor s 56 estimation Table 5-3: Analysis of the financial and time claims based on the contractor s 56 estimation Table 5-4: Summary of the claims concerning time in the project based on 58/59 both the contactor s and the engineer s estimations Table 5-5: The author s evaluations for the claims concerning only money 75 Table 5-6: The author s evaluations for the claims concerning both time and 76 money Table 5-7: Classification of the claims required an extension of time 82 Table 5-8: The author s evaluations for the claims concerning only time 86/87 Table 5-9: the author s, contractor s and engineer s estimations of the 90 extensions for the completion date of claims concerning both money and time Table 6-1: The Distribution of the questionnaires and the response rate 95 Table 6-2: Results of the acceptability of some of the NEC features 102 Table 7-1: The Ranking of the most important causes of the claims based on 109 the data received from the analysis of both the case study and questionnaire Table E-1: Appendix to the tender of the case project 143/144 Table F-1: The Respondents level of experience and their positions 160 Mustafa Abedmousa August-2008 X

12 LIST OF ABBREVIATIONS GDP- The Gross Domestic Product GNP- The Gross National Product MPWH The Ministry of Public Work and Housing PCU- The Palestinian Contractors Union PECDAR- The Palestinian Economic Council for Development and Reconstruction PHC- The Palestinian Housing Council PSCC-The Palestinian Standard Construction Contract Mustafa Abedmousa August-2008 XI

13 University of Birmingham Occupied Palestinian Territory West Bank Gaza Strip Total Agric. Indus. Const. Other Total Agric. Indus. Const. Other Total Agric. Indus. Const. Other Year million (Percentages) million (Percentages) million (Percentages) $ $ $ , , , , Table 2-1: Distribution of GDP by main sectors in Source: Developed from Abdulhadi, 1994 Mustafa Abedmousa August

14 University of Birmingham Claim No. The reason of extension for time completion (Based on contractor s request for extension of contract period). Contractor s estimation of required extension period (days) engineer s estimation of required extension period (day) A Exceptionally adverse weather conditions A-1 Heavily raining and foggily day A-2 Windy and heavily raining day Author s estimation (day) B Special circumstances outside both parties control B-1 Closure of the check points in the West Bank by Israeli enemies B-2 Same as B C Delays caused by Authorities 5 3 Insufficient information C-1 Stopping of the work in the project site by the municipality of Ramallha D A variation which is not included under subclause 13.3 of PSCC for adjustment to the time for completion D-1 Extending the electric room. This delays the concreting process for the ground floor D-2 Adjustment in the structure of the first basement floor by adding two new rooms. D-3 Replacement the old gate of MRI room with a new one D-4 Building a three more floors as connection building between the Kuwaiti Hospital and another hospital near to it. 5 3 N/A Table 5-8: The author s evaluations for the claims concerning only time Mustafa Abedmousa August

15 University of Birmingham Claim No. The reason of extension for time completion (Based on contractor s request for extension of contract period). D-5 Adjustments in the operation room which lead to delay importing of the electric board D-6 Change in the characteristic of the uninterruptible power supply (UPS) which leads to delay in its importing process. E Contractor not having received in due time necessary instructions E-1 The contractor not having received in the due time the drawings of the extra works ordered by the owner E-2 Late instructions given by the engineer related to the design of the entrance gate of the connection building. Contractor s estimation of required extension period (days) engineer s estimation of required extension period (day) F Delays because of work by the employer or those for whom he is responsible F-1 Redesign of the conditioning system F-2 Mechanically adjustment works are carried out at the sterilizing room in the second basement floor Cont. Table 5-8: The author s evaluations for the claims concerning only time Author s estimation (day) Mustafa Abedmousa August

16 Chapter One Introduction 1.1. Statement of The Problem In Palestine as in other developing countries in the world, there is a natural high increase in population. Such population growth requires constructed facilities such as housing, infrastructure, education, medical care and other services (Al-Sabah, 1997). In the year 1997, the Palestinian Housing Council (PHC) stated that more than 100,000 of new housing unites were required. Additionally, according to its expectation the number will increase considerably over the next few years in order to meet the natural high increase in population (Enshassi, 1997a). Thus Palestine has embarked on huge construction programmes. In order to ensure the appropriate quality of the construction projects, it is quite important that the programmes for construction must stay on the planned cost and time targets (Al-Sabah, 1997). The Author was working for two years in one of the institutes which are responsible for carrying out construction projects funded by the international and Arab communities in order to improve the infrastructure in Palestine. Particularly, he was working with the Palestinian Economic Council for Development and Reconstruction (PECDAR) in the project monitoring office. During that stage he noticed that the contractors and the employer tried to produce both money and extension of time for completion claims against each other. Therefore claims have resulted in significantly increasing the anticipated cost of the project, alongside considerable delays in construction being performed. According to Al-Sabah (1997), the claims and disputes have a deep impact on owners. The owners have a lot of damages, resulting from a construction claim like increasing the cost of the project by paying additional money to the contractors. Therefore it becomes very important to both employers and owners to investigate the basis for such claims, by identifying causes and recognizing the essential management Mustafa Abedmousa August

17 issues for them. Based on that investigation, new policies should be formulated in order to minimize the negative effect of the claims in the future The Importance of the Topic As mentioned before, the construction claims have a profound impact on owners and employers. The Construction industry in Palestine is full of claims which are caused because of many reasons like delaying in the completion date of a construction project, decreasing in the exchange rate of the U$D etc.. According to many researchers in the Palestinian construction industry, because of these reasons of the claims the contractors have suffered from a lot of losses. For example the report written by Al-Bakry and Melhem (2007) stated that the losses of the contractors who are working in the West Bank caused by the decreasing in the exchange rate of U$D, through the last three years, are estimated to be more than 130m U$D. Additionally, the contractors asked the Palestinian Contractors Union (PCU) to find a compensation mechanism to this claim and others. Therefore, the studying of the causes of the claims and how to improve the construction industry in Palestine has become the most important issue. In order to do so, researches in this field are required. According to Enshassi and Kaka (1997) little has been written in the literature about the situation of the construction industry in Palestine. Although the major construction programmes in Palestine have been plagued by disputes which are producing claims, the construction industry in Palestine suffers from scarcity of such literatures. Table 1-1, which has been done by the author throughout his search, shows the studies that discussed different problems in the construction industry in Palestine. As shown from the table, the last study related to the construction industry in the West Bank was in Although some of these articles had discussed very important new topics in the construction industry like risk management, sustainability and the labour productivity, none of these topics were studied in the West Bank. Furthermore none of these studies had discussed the disputes and claims in the Palestinian construction industry. Thus it seems very important to discuss such topic. Mustafa Abedmousa August

18 No. Title of the article Name(s) of the author(s) Date of Publication 1 Construction and housing in the West Bahiri, S Bank and Gaza 2 Construction and housing in the West Abdulhadi, R. S Bank and Gaza Strip : study 3 Delegation and span of management in Enshassi, A. and Kaka, 1997 the construction industry A.P. 4 Site organization and supervision in Enshassi, A housing projects in the Gaza Strip 5 Construction projects and the environment in Palestine. Enshassi, A Construction safety issues in Gaza Strip 7 The Reconstruction of housing in Palestine : A case study from the Gaza Strip 8 Analysis of construction site injuries in Palestine 9 Weathering of building stones and its relationship to the sustainable management of the aggregate resources in Gaza Strip, Palestine 10 Factors affecting labour productivity in building projects in the Gaza Strip 11 Cost Estimation Practice in The Gaza Strip: A Case Study Enshassi, A Barakat, S., Elkahlout, 2003 G. and Jacopy, T. Enshassi, A. and 2004 Mayer, P. E. Al-Agha, M. R Enshassi, A. Mohamed 2007 S., Abu mustaf, Z. and Mayer, P. E. Enshassi, A. Mohamed 2007 S. and Madi, I Table 1-1: Summery of literatures that discussed different topics in the Palestinian construction industry Mustafa Abedmousa August

19 1.3. Selection of the Topic As previously mentioned, the author was working to PECDAR for two years, during that period he was surprised by the quantity of claims from contractors to the employer in order to increase the cost and/ or extend the time for completion. Thus he was attracted to know the causes of that claims and disputes. By the ending of the first term the author became familiar with more topics particularly those arose in the lectures of construction management module which held by Mr. David Hoare. By the beginning of the second term, the author held a meeting with Mr. Hoare to seek his advice regarding selection the research topic. During the meeting, the author told Mr. Hoare about the situation of construction industry in Palestine and the problems of disputes and claims. Then Mr. Hoare encouraged him to do such report because of its importance to his country. Therefore, the author took his final decision to choose the construction claims in Palestine as a research topic for his dissertation Research Objectives The overall aim of this dissertation is to study the causes and the bases of the claims and disputes in the construction industry in Palestine particularly in the West Bank. In addition, the underlying management issues are studied under this research in order to identify the methods that might be used in order to alleviate the impact of the claims which leads to big improvement in construction industry. To do so, the author tries to find answers for the following driving questions: What are the significant problems in the construction industry? What are the most significant causes of claims and disputes? Is the current situation of the construction industry improved by enforcing use of the Palestinian Standard Construction Contract (PSCC) for all construction projects? How could the construction industry be improved? Mustafa Abedmousa August

20 Based on the pervious driving questions, the objectives for the research are stated as follows: Undertaking a literature study about the current situations of the construction industry in Palestine. Finding a construction project as case study. Identifying and analyzing the claims on that project. Studying the features of the PSCC and discussing some clauses related to disputes and claims. Giving recommendations for future studies and improvement based on the project finding Basic Hypotheses Just before doing any search, the author had assumed the following basic hypotheses: Hypothesis 1: The most significant cause of contractor s claims on contracts is the increasing number of the contractors in the West Bank which forces the contractors to submit unrealistically low prices. Then the contractor tries to make his profit by claims. Hypothesis 2: The closure by the Israeli authorities and lack of management systems cause delays in the completion date which leads the contractors to pay high liquidated damages. Therefore the contractors use the claims in order to alleviate the impact of the delays on their financial situations. Hypothesis 3: If the Palestinian National Authority enforces the use of the PSCC for all of the projects to be carried out in Palestine, the current situation will be improved because of its clear procedure to deal with construction claims. Mustafa Abedmousa August

21 1.6. Research Methodology Various research approaches are available for studying and identifying the causes and effects of the claims to construction industry and determining the actual underlying management issues. However for the purpose of this study, the research was performed by using three main methods. These three main methods are a literature review, which intended to collect information from books and journals, a case study and questionnaire survey distributed to governmental institutions that are directly or indirectly contributing to construction sector. Figure 1-1 summarizes the research methodology used in order to achieve the objectives of this research. Figure A-1 in Appendix A shows the timescale of the research proposed by the author in order to achieve the dissertation s goal. Figure 1-1: Flowchart of the research methodology Mustafa Abedmousa August

22 Literature Review In order to gather information about the relevant topic, a literature review was carried out. It was related to topics such as the background of construction industry in Palestine, the effects of the Israeli closure for the border and the checkpoints on that industry and a brief introduction for the PSCC which is version of FIDIC 1999 conditions of contract was carried out. Additionally some clauses which are related to money and time claims under PSCC contract book were discussed Case Study: Analysis of construction project claims In order to achieve the aim of the project, the author analyzed the contractor s and employer s claims for one of the implemented projects in Ramallah city in the West Bank. The causes and the effects of each claim were determined and discussed in detail. Moreover the claims were analyzed to determine the contractual basis for additional time and money awarded by the contractor Questionnaire Survey Questionnaire survey was distributed to gather information from governmental and nongovernmental institutions that are directly or indirectly contributing to the construction sector on issues of causes of delays and claims in construction projects and the way to improve the efficiency of the Palestinian construction industry. A statistical analysis was undertaken for the completed received questionnaires using excel Phone Interviews Deeply, the phone interviews were carried out in the purpose of seeking for extra explanations and more information about some of the contractor s claims which are associated with the project analyzed in the fifth chapter of this study. Furthermore these Mustafa Abedmousa August

23 interviews were undertaken to ask the engineers who had completed the questionnaire for further specific information based on their answers Data Analysis and Discussion In this section, all of the data collected were analyzed in order to identify the major causes of the claims and the essential management issues required in order to improve that industry. Moreover, the suggestions on improvement methods were evaluated Conclusion and Recommendations The findings of research were concluded. Furthermore recommendations for improving the current situations of the construction industry and the contracting system in Palestine in order to alleviate the effects of the claims in future contracts were suggested in forms of future studies Scope of the Dissertation Chapter One In this chapter, brief backgrounds of the problems which associated with construction industry in Palestine are given. Also, the importance of this study and its overall goal and objectives are stated. Furthermore the basis hypotheses and the various stages of the dissertation methodology are outlined. As well as its overall structure are summarized Chapter Two This chapter gives a general background about the construction industry in Palestine. Furthermore, this chapter disused many important issues related to this sector like, the reasons of why construction industry takes special importance and its role in the economy of Palestine. Also, the parties contributions to this sector are defined in detail. Finally, the challenges and constraints on the development of this sector and their impacts are studied in detail. Mustafa Abedmousa August

24 Chapter Three The aim of this chapter is to outline some of the PSCC s features. The arguments of many decision makers about this book as a way to reduce the disputes and the claims between the different parties are also studied in detail. In order to do so, a number of PSCC clauses are addressed in its sections as illustration to disapprove these arguments Chapter Four The general topic of causes of construction disputes and claims is outlined in this chapter which is basically based on literature. Furthermore, essential background for the analysis and explanation of construction claims in Palestine is provided under this chapter Chapter Five This chapter presents the background of the case study project and explains the causes of the claims arising. Most of these claims are analyzed using the UK best practice in claims resolution Chapter Six In this chapter questionnaire survey received form the respondents are analyzed. Based on that analysis the causes of the delay in construction projects are identified. Moreover, the analysis identifies the causes and basis of the claims as well as the underlying management issues. Some suggestions in order to improve the current situations of the construction industry are also outlined. Mustafa Abedmousa August

25 Chapter Seven This chapter provides summaries of the literature review chapters as well as the fifth and sixth chapters. The finding of the analysis of both chapters five and six are also outlined in bullet points. Furthermore, the main hypotheses are discussed in detail. The final section of this chapter proposes recommendations for future studies Limitations of the study As earlier stated, the overall goal of this dissertation is to identify the most important causes of the construction claims and disputes in Palestine. However, it is impossible at this point of research to take all of the causes of the claims in the Palestinian construction industry because of many constraints. The most important constrictions are as following: The time limitation- the given period for doing this study was only three months. Hence, it is impossible to study all of the causes of construction claims in such short period. The difficulty to collecting all of the required data in this topic- the construction companies as well as governmental bodies in Palestine deal with the claims report as confidential data. Therefore it is very difficult to get all of the required information to perform such research (see interview no.1 in Appendix B). The current unstable political situation in Palestine- because of that situation the author did not travel to Palestine, and he got all of his data via the internet. Another limitation of this research is that only one case study of construction projects carried out in Palestine was studied. The constraints, previously stated, are main causes of that limitation. But the author had used other research methods like questionnaire survey and phone interview besides the case study in order to achieve the overall goal and objectives of this research.. Mustafa Abedmousa August

26 Chapter Two The Construction Industry in Palestine 2.1. General Although the idea that the construction industry is inherently riskier than other industries since pricing process is generally carried out before constructing the project, it is one of most important economic sectors over the world. In addition, this industry has a strategic role in developing countries as well as industrialized ones (Al-Sabah 1997 and Enshassi et.al., 2007a). According to Al-Sabah (1997), ten percent of the USA gross national product (GNP) is dedicated to construction. Also in Japan, it contributes about 24% of the Japanese GNP. In the Arab states, construction industry holds similar economic position, for example during 1970 s, the share of the Saudi construction industry was about 34% of its gross domestic product (GDP). In Palestine, the largest and the most important industrial sector is the construction industry. According to PCU (2008a), notwithstanding the continuation of Israeli siege and aggression, this sector has been crucially significant because of its playing role in reconstruction, rehabilitation of roads and construction of infrastructure particularly in the last two years. Moreover the Palestinian construction industry has occupied a leading role in the economy of Palestine, whether in terms of its role in the generation of employment and income or its contribution to GDP (Abdulhadi, 1994). According to Sabri (1999), during the past 20 years the construction industry was the third major contribution to GNP after the agriculture and services sectors (see Table 2-1). Additionally, this sector has also carried high level of linkages with numerous other industrial activities, ranging from a very simple furniture manufacturing plants to major industries which are producing and processing construction materials (Abdulhadi, 1994 and Shaka'a et.al., 2001). Mustafa Abedmousa August

27 2.2. The History of Construction Sector in Palestine According to Abdulhadi (1994), construction in the West Bank and Gaza traditionally consisted of housing. During the late 1950s and early 1960s the construction activity of housing in Palestine boomed. This happens since a lot of Palestinians who found employment in oil producing countries in the Arab states remitted money to their families in the occupied Palestinian territory to invest in housing. Furthermore during 1948 to 1967 most of the construction of private houses was carried out by the private sector. However the construction of public buildings such as schools, hospitals, etc. was carried out by the central authorities or their agencies at that period. At the same stage and especially in the 1960s, a number of infrastructure and public works like construction of new roads, water and electricity distribution networks were executed. According to Ibid, the contribution of construction sector in the GDP, during that period, was 16% in the West Bank and 6% in Gaza Strip. Additionally, the sector had a relatively low efficiency because of inefficient planning and management at that stage. The construction materials were either locally available, like sand and stones which were available in Gaza Strip and the West Bank respectively, or imported from other countries, like the cement which was imported from Jordan to the West Bank and from Egypt to Gaza Strip. During 1967 to 1972, i.e. during the first decade of Israeli occupation to the Palestinian territories, the construction sector witnessed a severe decline comparing to its growth during sixties. This was related to two reasons, firstly a degree of political instability and the wide range of Israeli restrictive policies (Shaka'a et.al, 2001). During the 1972 to 1987, the construction industry in Palestine experienced a significant growth. Its share in GDP had doubled from 9% in 1972 to 18% in 1987 as shown in Table 2-1 which shows the distribution of GDP by the major sector of Palestinian economy for selected years (Abdulhadi, 1994). Mustafa Abedmousa August

28 According to Ibid, from the first Intifada uprising in 1987 to the beginning of the 1990s, the housing development in the Palestinian territories had been adversely affected by physical and financial restrictions. During that stage, the construction industry had undergone a sharp decline because of Israeli restrictions. These instructions included closure of large areas of land and prevention of expansion of villages and municipal boundaries. Such these restrictions called physical instructions. In addition to these instructions, there was another type of restrictions called financial instructions. At that time, tight controls were imposed on the transfer of money or funds from the abroad donor organizations and Palestinians, who were working outside Palestine. In addition, there was a tight control on the use of these funds in the West Bank and Gaza Strip. As result of the restriction between 1987 and 1994, the housing conditions were characterized by severe overcrowding and scarce facilities. After the peace accord, housing was a real problem for the Palestinian Authority which found that there were urgent needs for over 100,000 new houses (Enshassi, 1997a). To solve that problem, according to Enshassi and Mayer (2004), through 1994 to 1996 millions of US dollar had been contributed to the Palestinian National Authority by the international and Arab communities in order to improve the infrastructure in Palestine and build as much as possible in short duration. Therefore an emergency programme was established to perform that plan. In addition after the peace accord, the construction sector was professed as growth engine in Palestine. The share of this sector of GDP was dramatically increased by 15.2% and 23% from 1989 to 1995 (Enshassi et. al, 2007b). This situation did not change until the second Intifada uprising started in the year Since the year 2000 until now, the Palestinian construction industry has suffered from many problems mostly due to sharp reversals in the political setting and other problems which will be discussed later. In addition, its share of GDP was decreased to 9% in the year 2004 (Shaka'a et.al, 2001 and Enshassi et. al, 2007b). Mustafa Abedmousa August

29 Table 2-1: Distribution of GDP by main sectors in Source: Abdulhadi, 1994 Mustafa Abedmousa August

30 2.3. The role of construction industry in the Palestinian economy From previously mentioned information, there is no doubt that construction within any economy is a very important key activity since it is influenced by and affects the GNP for any nations ((Enshassi et. al, 2007b). The Palestinian construction sector can not be only considered as one of the key economic sectors, but also is the main force motivating the national economy of Palestine. It plays a major role in the generation of employment and income, as well as, this sector has carried out significant linkages with other industries like manufactures of construction materials (PCU, 2008a and Abdulhadi, 1994). According to Abdulhadi (1994), construction industry in the occupied Palestinian territory takes on special importance for many reasons. Some of these reasons are: 1. Construction for housing or other purposes by Palestinians has represented an obstacle to the land expropriation process and expansion of Israeli settlements in the West Bank and Gaza Strip. 2. Construction of infrastructure is contributing towards the consolidation of the Palestinian economic base since it has acted as a drive force for the local investment encouragement and mobilization. 3. A lot of labour forces have been employed in a number of industries supported by the construction industry through its large contribution to different sectors of investment. In addition a lot of industries related to construction, like PVC and plastics pipes, have been established. 4. Any expansion of construction activities in the West Bank and Gaza will reduce the dependency of the Palestinian economic on the Israeli one through providing more local employment for some Palestinian workers who are working in Israel. 5. The sector has contributed towards alleviating unemployment problems particularly the seasonal unemployment in the rural areas. Mustafa Abedmousa August

31 6. The construction sector is one of the main resources of the commercial one. In order to assess the importance of the construction industry in Palestine, three indicators should be utilized. These indicators are its contribution to GNP, labour force volume that employed in that sector and fixed domestic capital formation (PCU, 2008a and Abdulhadi, 1994) The Contribution of The Construction Sector to GDP The construction industry has a strategic role in Palestine. Its share of the GDP of Palestinian territories has increased from about $165 million in 1980 to about $382 million in 1987 (Abdulhadi, 1994). As previously pointed out, the contribution of this sector to the GDP fluctuated in an upward long-run trend bounded by 9% and 18% from 1972 to 1987 (see table 2-1) and by 15.3% and 23% from 1989 to 1995 (Enshassi et. al, 2007b and Abdulhadi, 1994). However, its sharing shows a dramatically decrease in the year 2004 because of the second Intifada uprising. Recently, it contributes 33% to the Palestinian GDP which is positively affecting economic, social, educational and vocational sectors (PCU, 2008a) Employment and The Construction Sector Enshassi and Kaka (1997) affirm that, construction sector is the largest industrial employer in Palestine. The number of workers employed in construction tricks in the West Bank and Gaza had increased from around 13,000 to about 20,000 in the period 1970 to 1989 (Abdulhadi, 1994). According to PCU (2008a) and Enshassi et.al. (2007b) prior to the second Intifada uprising on 28 th September 2000, the construction industry used to employ an average of 22.3% of Palestinian labour force volume as shown in the figure 2-1. This figure shows the labour forces employed directly in the Palestinian construction industry. Recently this sector employs only about 11% of Palestinian work force as direct consequence of the Israeli forces re-occupation of the Palestinian territories (PCU, 2008a). Mustafa Abedmousa August

32 Figure 2-1: Labour forces employed in the construction industry in Palestine for different years. Source: Enshassi et.al. 2007b Gross Domestic Capital Formation and Construction Sector According to Abdulhadi (1994), the sharing of the construction industry to gross domestic capital showing an increase by $60.5 million in 1972 to about $ million in 1987 had increased during that period from 43% to 68%. This rapid increase was owing to remittances of Palestinians working in the Gulf States and their investment particularly in private housing. This percentage has changed especially after the peace accord, since millions of dollars have been sent to Palestinian Authority from the international and Arab communities to reconstruct Palestine. However there is not any available information about that issue, since as formerly mentioned, there is very little written literature about the status of the construction industry in Palestine. But to understand the recent situations, the parties who contribute to the construction sector should be defined. Mustafa Abedmousa August

33 2.4. Parties related to the Construction Sector Through a complementary process, public and private sectors, universities, donor countries, international financing institutions and banking sector can be considered as stakeholders or parties who contribute to the Palestinian construction industry. These parties provide necessary materials, support the construction project financially, make necessary services and manage the contraction contracting profession in accordance with the Palestinian laws and regulations (PCU, 2008a). In this section, the role or the way of contribution of all of these parties in the construction sector is discussed in detail The Private Sector As noted earlier, most of the building construction in the Palestinian territories is for housing. Most of those projects have been carried out under responsibility of the private sector which entails the construction contracting sector, engineering sector, laboratories for testing, private project owners like investors and private sector cooperation, services sector and manufacturing of construction materials (Abdulhadi, 1994 and PCU, 2008b). Construction Contracting Sector The Palestinian contractors have a vital role on the construction industry before and after the establishment of the Palestinian National Authority in Furthermore, they proved their national role and outstanding ability in construction and reconstruction. That role has been noticed during the Israeli incursions where they have worked hard in order to reconstruct and maintain the damaged infrastructures and buildings by Israeli Authority especially in 2003 (PCU, 2008b). Recently, the numbers of both skilled and unskilled Palestinian contractors who carry out construction projects in Palestine have dramatically increased in all over Palestinian cities and towns. The major reason of that rapid increase is the Israeli Mustafa Abedmousa August

34 siege. Table 2-2 and 2-3 shows the number of the contractors distributed throughout Palestinian cities in both West Bank and Gaza. No. West Bank Number of Contractors 1 Jerusalem 6 2 Jenin 27 3 Nablus 46 4 Qalqilya 5 5 Ramallah 54 6 Jericho 1 7 Tulkarem 23 8 Bethlehem 33 9 Hebron 38 Table 2-2: Number of the contractors distributed in the cities in the West Bank Source: PCU, 2008b No. Gaza Strip Number of Contractors 1 Northern Gaza 24 2 Gaza City 86 3 Middle Region 11 4 Khanyounis 60 5 Rafah 20 Table 2-3: Number of the contractors distributed in the cities in Gaza Strip Source: PCU, 2008b Who is the Contractor? The contractor in Palestine could be an individual or a company having the right to practice the construction contracting profession according to laws and Mustafa Abedmousa August

35 regulations used in Palestine. In addition who or which should be registered and classified at PCU. Contractors are classified into five categories according to their area of specialty. The areas of specialists are building, road construction, water and sewer, electro-mechanics and public work and maintenance. Contractors in each field are classified to three categorizes or classes which are Class A, B and C. This classification is carried out based on the instructions of contractor classification which are issued by the National Classification Committee (PCU, 2008c). According to Ibid, there are many requirements used in order to classify the Palestinian contractors. These requirements are as following: 1. The contractors financial situations 2. The value of their construction equipments 3. The upper and lower limits of the values of the project carried out by them. 4. The contractors years of experience in that field 5. The areas of their own offices. The Palestinian classification instructions consist of three parts which are written in Arabic language. These three parts are the classification instructions, the classifications applications forms and the classification instructions annexes. Adding these parts to the dissertation will make it very huge and useless since they are written in Arabic language. Therefore the author decides to add them into the Appendix C in the CD. Engineering Sector and Testing Laboratories Engineering sector The engineer who is working in the contraction sector should have obtained at least the first university degree in the science of engineering conferred by an Mustafa Abedmousa August

36 official university which should be approved by the Palestinian Ministry of Higher education. Furthermore he is not only registered at the Palestinian Engineer s Syndicate but also, he must be specialized in planning and construction project management fields. It is one of his responsibilities to apply the theories and principles he already studied practically. The number of engineers registered at the Palestinian Engineer s Syndicate in both the West Bank and Gaza was more than 11,000 in the year 2003 (PCU, 2008b). Testing Laboratories It is clear that not all of the materials can be used for construction. Therefore, it should be testing laboratories deciding which of these materials shall be used and for what. The testing laboratories in Palestine belong to academic institutions, syndicate of engineers and private sector Ibid. Owners of Private Project Basically the owners of private projects could be individuals or private companies. As stated earlier, the owners can be investors or a private sector corporation. The role of the investors is to support the project financially. However the role of private sector corporation is to manage the projects (Abdulhadi, 1994 and PCU, 2008b). Generally, individual construction is carried out by small contractors. These contractors are charged with the responsibility of the building but not the construction materials which are usually supplied by the owner. However, in a large project like construction of multi- storey buildings in cities, it is usually carried out either by a single contractor or many subcontractors who is or are not only responsible about completing the work but also provide the construction materials (Abdulhadi, 1994). Mustafa Abedmousa August

37 According to Ibid, since 1993 it has been noticed that the number of individuals and institutions who or which have become involved in real estate development activities has increased. An example of such activities which have been carried out by individual investors, informal partnership or formal real estate development companies is construction and sale of residential buildings in larges cities in Palestine. Local Business Development In the last few years, construction for both commercial and industrial purposes has increased. It is noticed that, the establishment of municipal industrial zones in the large cities has been accompanied by increasing construction in those provinces. Such that construction industries play a complementary role to the contractor s task. Also, those industries should play a distinguished role in order to attain the international standards and penetrate competitive market. The factories have supplied certain construction materials like cement, concrete, stone, sewer equipments, etc. (Abdulhadi, 1994 and PCU, 2008b). Service Sector This sector involves transportation companies, importing and exporting firms and insurance corporations. Service sector is not only efficiently complemented to the construction works but also contributed to the development of the construction industry in Palestine (PCU, 2008b) The Pubic Sector As previously mentioned most of the construction projects in Palestine have been carried out by the private sector. According to Abdulhadi (1994), the percentage of the total construction carried out by public sector during was less than 1.5% in the West Bank and less than 3.2% in Gaza Strip. However after the peace accord, this Mustafa Abedmousa August