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

38 percentage has increased because of the great funds from both the international and Arab communities (Enshassi and Mayer 2004). PCU (2008d) and Abdulhadi (1994) state that, public sector which is includes public project owners, like governmental institutions, and other firms working in construction sector has been with very few exceptions responsible for non residential purposes construction like hospitals, schools, government buildings and the like. The governmental institutions could be directly related to the construction sector wherever a governmental body owns a construction project. Its role in such case is to manage public projects like water and sewer, road construction, etc. As well as, they could be controlled and supervised the construction sector. Such these institutions are indirectly contributing in the construction sector. The Ministry of Public Works and Housing, the Ministry of Labour and Palestinian Standard Institute are the governmental bodies which are directly contributing in the construction sector. On the other hand, the institutions that are indirectly sharing in that sector are the Ministry of National Economy, Ministry of Planning and International Cooperation, Palestinian Water Authority, Palestinian Energy Authority, Ministry of Health, Ministry of Higher Education, Ministry of Local Government, Ministry of Finance, Ministry of Transportation and Communications, PECDAR and many Municipalities (PCU, 2008d). Therefore, the construction sector is organized according to PCU law and the laws enacted by the previously mentioned governmental institutions The International Funded Countries and Institutions Public building in Palestine has been largely financially supported from external sources which contributed towards the execution of public projects on the basis of wide-ranging criteria and throughout a number of channels. Such that external source should be secured in order to give the Palestinian contractors a priority to perform large-scale projects and to ensure that the contractors have the required skills and capacities for more productivity. As well as the external financial source should be protected to assist and support the Palestinian contractors (PCU, 2008e and Abdulhadi, 1994). Mustafa Abedmousa August

39 Ibid state among the major donors to local public projects has been the Arab Fund for Economic and Social Development, The Islamic Development Bank (IDB), the United Nations Relief and Work Agency (UNRWA), Agency for International Development (USAID), the European Union, a number of private voluntary and non governmental organizations and several Arab and foreign governments. Figure 2-2 shows the grant distributed to different sectors in Palestine during As shown in that figure about 35% of the funds which were equal to 3 US billion dollars were offered to the construction sector. 26% 35% 29% 10% Infrastructure (Construction sector) Social sector Product sector (Manufacture sector) Institution Building Figure 2-2: Funds Distributed to different sectors in Palestine between 1994 and 2000 Source: Developed from PCU, 2008e Banking Sector The Banks in Palestine have a vital role in construction industry through their offering of many banking facilities to the contractors. However, recently the investments of the banks in construction sector have been decreased because of the increasing risks surrounding the construction industry. Therefore the banks investment in the construction industry is too low in comparison with their investment in other sectors. As a result of this the national economy has been affected by this decreasing in the investment since as Mustafa Abedmousa August

40 stated earlier, the construction industry is a driving and basic force of the GNP (PCU, 2008f) Universities and Institutes According to PCU (2008g), there are many universities and educational institutes in Palestine which are contributing in the construction industry by offering various engineering specialists. These universities and Institutes play a vital role in preparing engineers to hold different construction professions in Palestine. Additionally, some of the universities offer other services which are necessary for both educational and construction sectors. Most of these universities such as Birzeit University, An-Najah University, Palestine Polytechnic University and the Islamic University offer several engineering specialties such as civil engineering, electrical engineering, industrial engineering, chemical engineering, architecture, and mechanical engineering. Moreover, all of the mentioned universities have testing laboratories for construction materials and soil mechanics as well. On the other hand, only one university which is the Islamic University at Gaza has a master degree programme in construction management field Limitations and Challenges Since 1967, the construction industry in Palestine has undergone many changes. Most of these changes owe to the restrictive policies imposed on residents. These policies include confiscation and expropriation of land, restriction on expansion of building materials manufactures and limitation on transfer of funds from Palestinians working abroad. Furthermore, a number of indigenous and international factors have affected the nature of this sector s development. The most important factors which have affected the nature of the construction sector s development are the rapid international increase in the price of construction materials especially the price of the steel, the change of the exchange rate of the US dollar as well as inadequate planning and control over construction activities not only technically but Mustafa Abedmousa August

41 also financially (Bakry, and Melhem, 2007 and Abdulhadi, 1994). These factors and others are discussed in this section Housing and Construction Sector Finance Before the peace accord in 1994, the major constraint on development of construction activities in Palestine was the absence of formal Palestinian credit facilities. At that time there was not any financial credit facilities for housing in most of the Palestinian cities and towns (Abdulhadi, 1994). During , many banks were opened which helped on development of the construction sector. After the year 2000, as previously stated, the bank investment in construction sector has been too low in comparison with their investment in other sectors of Palestinian economic, since construction industry has been subjected to many risks (PCU, 2008f). This low investment has affected the development of construction industry. Moreover it has affected the financial situation of contractors and causes financial losses for them (PCU, 2008h) Planning and Managerial Skills Construction activities suffer from inadequate skills in planning and implementations. Only very few senior architects and engineers have gained the essential technical skills and experience abroad (Abdulhadi, 1994). Most of the planning time programmes which are most of the time prepared by theorists unfamiliar with the real site of construction are abandoned and everything becomes a daily crash action (Kittana, 2008a). In addition, most of the projects provided by local market are separate design and construction in which the consulting engineer is responsible for design and the contractor for construction (Perry, 2007 and Abdulhadi, 1994). In addition, despite the increasing demands for new and modern techniques, the modern construction techniques especially in project management and implementation have not been used by the majority of the contractors and sub-contractors (Abdulhadi, 1994). Mustafa Abedmousa August

42 Israeli Siege According to PECDAR (2008a), due to the Israeli policy of closures and incursions the Palestinian economy has suffered a total loss $ 19.9 billion. The losses in the construction industry during were U$D1178 million. The losses in the construction sector which are raised due to the Israeli siege can be classified as direct losses and indirect losses. The direct losses are the losses due the destruction of many facilities whether completed or under construction (PCU, 2008h). Examples of some causes of these losses are destruction of many roads, water and drainage networks and many subsidiaries construction factories. According to Ibid, the indirect losses in the Palestinian construction industry are due to Israeli restrictions on the import and export process as well as on transportation of the construction materials. The causes of indirect losses are as following: Restrictions on the contractors, engineers, owners, and worker movement between the cities and villages. Constraints on the transportation process for the construction materials between the cities. Constraints on the import of construction materials from abroad to Palestine. Restrictions on the establishment of major building materials industries. Delaying in the transportation process of the imported construction materials from the Israeli ports to Palestine without any reasons. Moreover, the contractors have suffered from that siege. The losses of the contractors firms in Palestine between 2000 and 2001 were more than $77,555,850 million. Mustafa Abedmousa August

43 According to Ibid, construction contractor firms on the West Bank have suffered from 60% of those losses as shown in Figure % 60% West Bank Gaza Strip Figure 2-3: The Percentage of the Palestinian Losses in the Construction industry in 2000/2001. Source: Developed from PCU, 2008h The contractors firm s losses due to the Israeli closure can be classified as direct and indirect losses. According to the estimation of PCU, The amount of the direct losses in the year 2001 was more than $21 million. This amount of losses was due to destruction of many infrastructure projects and many constructed and under constructed buildings. Also, the delay on implementation of many projects by Israeli occupation was one of the reasons causing these losses. The amount of indirect losses was more than $35 million as shown in the figure 2-4. According to Al-Bakry and Melhem (2007) and PCU (2008h), the siege has made a strong competition between construction companies. Additionally, many construction companies had declared bankruptcy between 2004 and 2007 as a result of the losses in the construction industry and the strong competition between the Palestinian contractors. Mustafa Abedmousa August

44 Indirect Losses Direct Losses 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Figure2-4: The Estimated Amounts of the Contractors Firm s losses in Palestine for the year 2001 Source: Developed from PCU, 2008h As shown in figure 2-4, the value of indirect losses is almost twice the direct one. The indirect losses could be divided into administrative, operating and financing losses. Figure 2-5 shows the estimated value of each part of the indirect losses. As shown in that figure the operating losses have the highest amount value and the financing losses have the lowest amount. 1. Administrative losses According to Bornstein (2002), one of the unique and modern forms of social and economic control is the geopolitical border. Additionally, it is an important mechanism in processes of exploitation and domination. Occupation policies in Palestine restrict the improvement of the construction industry by denying entry and movement to engineers and contractors between the Palestinian cities and villages. Thus, it is influencing the ability for planning and managing the projects (PCU, 2008h). Mustafa Abedmousa August

45 Moreover, because of the current situation in Palestine, the amount of funds transferred from international and Arab communities and organizations have been decreased. Also, the number of contractors has dramatically increased in the last few years as a result of the Israeli closures and borders which have denied the contractors who were working in Israel to entry to it. Therefore those contractors have started to carry out projects in the West Bank and Gaza. This has lead to high competition between the companies and submitting unrealistic low prices of the tenders by contractors (PCU, 2008h and Al-Bakry and Melhem, 2007). 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 Financing Operating Administrative 0 Figure2-5: The Amounts of each type of the indirect losses Source: Developed from PCU, 2008h 2. Operating losses The border has restricted the importing process of construction materials. Therefore, construction industry has suffered from scarcity of those materials and this leads to a rapid increase of the construction materials prices. Moreover, Israeli borders and checkpoints have separated the point of production from the point of labour s reproduction. Therefore, the productivity of the labours has decreased alongside the hours of working have also decreased, i.e. the operating prices have dramatically Mustafa Abedmousa August

46 increased (Bornstein, 2002 and PCU, 2008h). Furthermore, according to PCU (2008h), as a result of the risk increasing which surrounds the construction projects due to the activities of the Israeli enemy against the infrastructure and other projects, the insurance rates of such projects have increased. One of the most important factors of operating losses is the scarcity of the available projects while, as stated earlier, there are a massive number of construction contractors who are in a high competition in order to award these very few projects. 3. Finance losses The major reasons of such losses are the decreasing percentage of investment on the construction industry because of the high risks surrounding such projects. In addition, the requirements to have the bank facilities, like long and short loans, as a Palestinian contractor have become difficult if not impossible to achieve. The interest rates of these bank services have dramatically increased since All of these restrictions from the banker against contractors are taken place in Palestine because of the high risks surrounding the construction sector (PCU, 2008h) Other Constraints According to Al-Bakry and Melhem (2007), the construction sector in Palestine has suffered as a result of many events that have occurred since the year As a result of these events, many contractors declared bankruptcy and some companies went out of business. Recently, one of the major events which have caused a lot of losses for the construction contractor is the decreasing exchange rate of the US dollar. The reasons of such losses are that the contractors always purchase the construction materials using the local currency shakel while the contract is paid by foreign currency especially the US dollar. Ibid states that, although the proportion of decreasing of exchange rate of the dollar losses is estimated to be 9.5% of the projects tenders prices, none of the contract conditions book used in Palestine has offered any compensation mechanism. The Mustafa Abedmousa August

47 fluctuation in the prices of the construction materials in Palestine, especially the price of the reinforcement steel, is also one of the problems that have caused a lot of claims. These claims are arising since the sub-clauses for this situation is an optional one (see chapter 3 and 4 for more information). Another challenge is that there are multi specifications for contracts since there are many governmental bodies who act in the construction sector. Furthermore each contract has different currency and different conditions which are dependent on the funded organizations or country. Therefore both Al-Bakry and Melhem (2007) and PCU (2008d) recommend enforcing the PSCC as a solution for all of these problems Conclusion As previously mentioned, the construction industry is one of the most important sectors in Palestine. Its share in GNP has suffered from fluctuation at different stages. Since the year 2004, its share in GNP is about 9%. The Israeli policies and closures have influenced the construction industry in Palestine. The amount of losses in year 2001 was more than $77 million. Additionally, the construction sector has suffered from many challenges and obstacles which have delayed its improvement and development. Hence, many Palestinian authors have recommended enforcing the PSCC in order to improve and enhance the construction sector situation in Palestine. Mustafa Abedmousa August

48 3.1. Introduction Chapter Three The Palestinian Standard Construction Contract (PSCC) As previously stated, there are many governmental bodies that are responsible for different public construction projects. Those ministries have used many different conditions of contracts as well as different specifications. According to the Ministry of Public Work and Housing (MPWH) (2008), the previous conditions of contracts could be described as injustice and full of clauses that leads to claims and disputes. Moreover, using such different conditions of contract is a favor for one party against the other. Ibid stats, in many projects carried out in Palestine, the contractor s and employer s tendencies were to make quick profit without looking to the other objectives of the projects i.e. the time and the quality. That has lead to spending a lot of money during the operation and maintenance stage for such projects. In order to enhance the situations of the construction industry, many decision makers especially the ministries which are working in the construction field have recommended having only one standard contract book for all of the construction works in Palestine. Between 2004 and 2007, many Palestinian governmental bodies including the MPWH, the Ministry of Education, PECDAR and PCU were working hard to implement a standard contract book. By the beginning of 2007, the PSCC was introduced and published. As mentioned before, although many Palestinian decision makers have recommended enforcing the use of the PSCC as a direct way to improve the situations of the construction industry, this book does not come into force yet (Al-Bakry and Melhem, 2007 and MPWH, 2008). 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 the following sections as examples to approve or Mustafa Abedmousa August

49 disapprove these arguments. Since the PSCC has been used only since last year by few governmental bodies in Palestine, there is not enough information about the problems which may be faced by the parties through applying the conditions of this contract. Therefore, the presentation in this chapter is based on the author s study of both the general and specific conditions of PSCC and the FIDIC users guide which is a practical guide to the 1999 red book. In addition, the lectures of the construction management module and the works done by other authors like Smith (1990) and Al-Sabah (1997) are used in the presentation of this chapter The Features of the PSCC Book As early stated, since February 2007 the PSCC has been used in Palestine, however until now it does not come into force. Many experts from different governmental bodies contributed in the drafting and accomplishing of such huge work (MPWH, 2008 and PCU, 2008i). The PSCC forms the basis for the contractual relationship between the three main parties of any contract being the owner of the project, the main contractor and the consultant engineer (MPWH, 2008). Furthermore, PSCC conditions of contract include the general and particular conditions. These two parts are written in Arabic language. Appendix D in the CD attached with the final hard copy version of the final dissertation contains these two parts of the PSCC book because of the previously mentioned reasons regarding the Palestinian classification instructions books The Features of the General Conditions of Contract under the PSCC The general conditions of the contract are based on the 1999 FIDIC conditions of the contract for construction which is commonly known as the New Red Book (Totterdill, 2001). MPWH (2008) and Totterdill (2001) state, the FIDIC conditions of contract which are developed and published by the International Federation of Consulting Engineers are the most common conditions of the contract used for international construction projects. Moreover, since 1999 this book has been used as a reference for Mustafa Abedmousa August

50 most of the construction and contractual works in the world. Since 2003 the FIDIC 1999 has been used in most Arab countries. As previously mentioned, the FIDIC 1999 is the base for the general conditions of contract of PSCC. In order to describe the feature of this book, the author studied both the PSCC and another contract book called the New Engineering Contract (NEC3). Based on the author study, the features of general conditions of contract under PSSC book comparing with the NEC3 ones are as follows: 1. The book was written in Arabic language, but the written language is complex and not easy to understand. It rarely uses words which are in common use. 2. The written language is too formal. This makes it difficult to understand by people who are not used to using formal contracts. 3. The sentences are long. Moreover, the authors have seldom used bullet points to subdivide the sentences. This makes the sentences not easy to understand. 4. In this book, a lot of words that lead to incidence of disputes have been used. Words like reasonable, fair have been used a lot. 5. The general conditions are translation for FIDIC 1999 from its written language which is the English language to the Arabic language The Features of the Particular Conditions of Contract under the PSCC The second part of the PSCC book is known as the particular conditions of contract and the forms. The particular conditions are prepared by changing some of the general conditions in order to be applicable in Palestine i.e. to suit the Palestinian requirements (MPWH, 2008 and PCU, 2008i). They include changes in some particular clauses by adding or deleting some sentences from a particular sub-clause. Also, the changes contain adding or deleting a certain sub-clauses. An example of these changes is the sub-clause Mustafa Abedmousa August

51 related to the management meeting which is added to the clause three of the general conditions The Engineer. Changing the applicability of certain sub-clauses from being compulsory to be optional is also a feature of the particular conditions of contract book. This second part of this book includes some of the required forms in any contract. Letter of tender, form of tender guarantee and form of contract agreement are examples for these forms. The second part of PSCC was written in Arabic language based on the previous experience of many consultant construction firms and other governmental bodies in Palestine (MPWH, 2008). The particular conditions of the contract may help the parties by making the general conditions applicable in Palestine. However, some of these conditions especially the subclause 13.8 Adjustment for changes in cost which is an optional sub-clause under the PSCC has caused disputes between contractors and employers (Al-Bakry and Melhem, 2007). Moreover, the first four points mentioned in the previous section are also noticed by the author through his studying of the second part of the PSCC book The Clauses related to Claims from The PSCC As earlier stated, the PSCC forms the basis for the contractual relationship between the owner of the project, the consultant engineer and the main contractor. Thus, the framework for any claim which arises during the contractual relationship is provided by this book (Al-Sabah, 1997). In the analysis of the case-study for the purpose of this research Chapter five, some provisions related to the contractor claims under the PSCC will be used. Therefore, availability of contractual claim list under the PSCC may make carrying out the analysis of the claims in that case study easier. As previously mentioned, the PSCC is based on FIDIC 1999 the New Red Book. The list of contractual claim in FIDIC s forms of contracts was shown in the Tochaiwat s and Chovichien s paper Strategic Data for Employers Construction Claims which cited from the proceeding of the conference on International Symposium on Globalisation and Construction. The sponsoring organization of that conference was the Department of Mustafa Abedmousa August

52 Civil Engineering at Chulalongkorn University. Figure 3-1 shows the list of several clauses related to the construction claims. Moreover this list does not only show the construction claims against employer, but also it shows the claims against the contractor. The party against whom each clause claims and the functions for each provision claims are presented in the table. The author notices that the claims related to sub-clause 13.8 Adjustment for Change in Cost were not mentioned in the table. Therefore, he adds that one to the table. No. Sub-clause Claimed by Claim for Employer Contractor Cost Time Delayed Drawings or Instructions Right to Access to the Site Setting Out Unforeseeable Physical - Conditions Electricity, Water and Gas Employer s Equipment and - - Free-Issue Material Fossils Testing Rejection Remedial Work Extension of Time for - - Completion Delays Caused by Authorities Rate of Progress Delay Damages Consequences of Suspension Failure to Pass Tests on - - Completion Taking Over of Parts of Works Interference with Tests on - Completion Extension of Defects - - Notification Period Failure to Remedy Defects Contractor to Search Omissions Right to Vary - Table 3-1: The Clauses related to Claims from FIDIC 1999 Source: Tochaiwat and Chovichien, 2004 Mustafa Abedmousa August

53 No. Sub-clause Claimed by Claim for Employer Contractor Cost Time Value Engineering Adjustments for Changes in Legislation Adjustment for Change in Cost* Delayed Payment Contractor s Entitlement to - Suspend Work Indemnities Consequences of Employer s - Risks General Requirements for - Insurances Insurance for Works and - - Contractor s Equipment Consequences of Force Majeure - *: Sub-clause was added by the author Table 3-1: The Clauses related to Claims from FIDIC 1999 (Cont.) Source: Tochaiwat and Chovichien, Discussion of Certain Clauses of Particular Relevance to this Research According to Kittani (2008c) the main obstacle which could face the main parties of the projects who are using the PSCC or even FIDIC 1999 is the misinterpretation of words or phrases in the contract. Moreover, Ibid states that although the written language of PSCC is Arabic, it is a legal language which is not easy to understand and it can be used by lawyers. According to Wang and Yao (2006), the legal language can be defined as a complex collection of linguistic habits developed over many centuries. Moreover, only lawyers can use this language quite strategically, since they have learned how to use it. Ibid affirm that it is not easy for engineer to use FIDIC contract conditions since most of the linguistic features can be seen in it. Therefore FIDIC provisions should be applied with adequate precautions in order to avoid creation of some misunderstandings (Al-Sabah, 1997). Since the PSCC is based on the FIDIC Hence it is expected that misunderstandings will happen at applying Mustafa Abedmousa August

54 many clauses of the PSCC. The author gives some examples of these problems in specific areas. He focuses on the issues of timely completion dates, contractor s claims, the engineer s role in the PSCC and other procedural issues. The discussed clauses are some of those shown in the table 3-1. These discussed sub-clauses are chosen since they are related to the issues will be studied in the fifth and the sixth chapters of this research Sub-Clause 4.12 Clause 4.12 deals with unforeseeable physical conditions. According to Al-Sabah (1997), the clause is dealing with one of three different sets of foreseen circumstances under the administrative legal rules. The second set of events is the unforeseeable economic and political circumstances which are addressed in the FIDIC 1999 conditions of contract and the PSCC under adjustments for changes in cost Clause 13.8 and employer s risks clause The third set of events deals with unexpected changes in the laws and regulations which are addressed in the FIDIC 1999 conditions of contract and the PSCC under adjustments for changes in legislations Clause Totterdill (2001) states that, the most common source of claims and disputes in construction projects are probably related to clause Moreover, the definition of physical conditions is wider than expected since it could include many of unexpected situations which the contractor has faced at the site during carrying out the work. Al- Sabah (1997) mentions many conditions in order to apply this clause. The first condition is that it should be of a physical nature. This word which is translated into Arabic is shown in PSCC. The second condition is that it must be unforeseen by an experienced contractor at the time when the contractor submits his tender (Smith, 1990 and Totterdill 2001). Such that clause could lead to many claims. The first claim is for compensation for time and/or money. In this instance compensation is left to the discretion of the judge (Al- Sabah 1997). Totterdill (2001) states that this clause could be both fair and workable in practices by giving the contractor the time and the chance to carry out investigations at Mustafa Abedmousa August

55 tender stage or the employer should carry out a proper investigation before calling tenders. However Smith points outs that, it is difficult to draw the dividing line for this area or such clause. Moreover according to Ibid, practically, most of the claims are made in respect of unforeseen physical conditions. Furthermore, the author point outs that, the word adverse under this clause leads to many claims since it is left to the discretion of the judge and it probably includes different point views. The PSCC does not offer any method of reducing disputes on this topic. But other contract books like the NEC3 offer many methods in order to reduce the disputes and the claims related to the unforeseen physical condition. Therefore, replacing this clause by the sub-clause 60.1 under the NEC3 could be a good solution in order to reduce the disputes Sub-Clauses 8.4 According to Al- Sabah (1997), the FIDIC contract envisages a great deal of situations which lead to an increase in the period for completion of a project. Many clauses define the consequences of any delay for the completion date. These consequences depend on the party who is responsible of that delay i.e. the consequences of delay attributable to the contractor are different for ones which attributable to the employer. In this study, the author focuses on the consequences under sub-clause 8.4 Extension of Time for Completion and under sub-clause 8.7 Delay Damages. A list of the situations in which the contractor may be entitled to an extension of the time for completion is mentioned under the sub-clause 8.4. Under this clause the contractor is entitled to an extension of time but not to additional payment. The role of engineer in order to assess the required extension of time is wide. Furthermore the extension of time for completion is carried out by the engineer based on the procedures of sub-clause 3-5 Determinations. But this sub-clause does not give the engineer a time period for making his determination. Moreover, the word Fair in that sub-clause may question the legal meaning of it (Al- Sabah, 1997 and Totterdill 2001). Mustafa Abedmousa August

56 Sub-Clause 8.7 The sub-clause 8.7 Delay Damages deals with the amount of damages which shall be only money due from the contractor to the employer because of the contractor s default of delay Ibid. This clause does not ask the employer to establish that he has suffered damages and to establish the extent of such damages Sub-Clause 13.1 Sub-clause 13.1 deals with the right to vary. According to Totterdill (2001), the list at sub-clause 13.1 (a) to (f) shows the instructions which can be issued by the engineer to change a wide range of matters concerning the works. The language of this sub-clause provides the engineer a wide power not only to vary part of the works but also to vary all of the works. However this sub-clause will not authorize complete transformation or any extra works which are not related to the original project (Al-Sabah, 1997). Therefore, having extra works neither additional nor unexpected can be described as new works. I.e. this clause limits the type and the amount of change Sub-Clause 13.7 Sub-clause 13.7 is relating to adjustments for changes in legislation. These changes in legislation could lead to an increase or decrease in the cost. If the possibility to decrease the cost is valid, then the employer should submit a claim under sub-clause 2.5. Similarly, if the contractor suffers delays or additional cost or both, then he should submit a claim under the procedures of sub-clause 20.1 (Totterdill, 2001). The legal basis of any claim which is submitted by either party is always discussed in relation to the particular circumstances. According to Al- Sabah (1997), the changes in the legislation by introducing new laws or regulations are interesting point and they open the door for a claim full compensation. This situation will happen since each ministry is deemed to be one part of one unit which Mustafa Abedmousa August

57 is the government. Therefore, the contractor or the employer working for one ministry can claim full compensation if any changes in the laws or regulations is decided by other ministries Sub-clause 13.8 Sub-clause 13.8 refers to an increase or decrease in the cost paid for the contractor due to fluctuations in the prices of the construction materials, labour etc. In order to apply this sub-clause, the table of adjustment data should be attached to the tender appendix. Under the PSCC particular conditions of contract this clause is optional. the employer has a choice to apply this clause or not. According to Kittani (2008c), making this clause as an optional clause has caused high losses for contractors in Palestine and it increases the number of the contractor s claims. Ibid argues that, the contractors try to alleviate the effects of this decision by submitting high number of claims which most of the time have no legal basis (See Interview 3 in Appendix B) Sub-Clause 17.3 The employer s risks which are listed at sub-clause 17.3 cover the list of risks specified in clause 19.1 as constituting force majeure with some changes and additions. Only the subparagraphs from (e) to (g) at sub-clause 17.3 are not included under force majeure. The sub-paragraphs from (b) to (d) are included some changes, and sub-paragraphs (a) and (h) are left without any difference (Totterdill, 2001). But the question will arise whether another force majeure cause rather than these specified risks will be an employer s risks or not (Al- Sabah, 1997) Clause 19 The definition of force majeure, the procedures that should be followed and the consequence if a force majeure event occurs are included under clause 19. Totterdill (2001) states that, the force majeure which is new concept for FIDIC 1999 is covered by Mustafa Abedmousa August

58 the law of many countries in the world. The definition of force majeure is the impossibility of performance due to any exceptional events or circumstances outside the control of both parties. Although the period of suspension, after which if the impossibilities persist either party may have the option to terminate, is stated under both FIDIC 1999 and PSCC, the question that may arise is about the situation if the purpose of contract can no longer be achieved as a result of the temporary impossibility (Al- Sabah, 1997) Conclusion A brief introduction to the PSCC conditions of contract is offered in this chapter. Furthermore it provides a list for the clauses related to claims from FIDIC 1999 and PSCC. Such that list could be helpful for the author in his analysis of the claims at the case study. Many clauses mentioned in that list or table were discussed in details based on the author s study of the both general and specific conditions of PSCC and the FIDIC users guide which is a practical guide to the 1999 red book. Moreover, works done by other authors were used in purpose of the discussion. Based on that discussion, some subclauses under the PSCC and FIDIC 1999 are not clear enough and could lead to more claims and disputes between parties. Mustafa Abedmousa August

59 Chapter Four Construction Claims: Causes and Costs 4.1. Introduction The Clauses related to claims from FIDIC 1999 were listed in the previous chapter. Moreover a discussion for some of these provisions was carried out under that chapter. In order to understand the clauses related to claims, the causes of construction disputes and claims should be known and understood. The general topic of causes of construction disputes and claims is addressed 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. This chapter is divided into sections each concentrating on one aspect of the topic. Some of these sections may not be directly relevant at the level of the claims from the Palestinian contract. On the other hand, these sections could be necessary for facilitating the subsequent full analysis and discussion of the causes of the construction claims Claim Definition Generally, the primary relationship between or among the parties to a construction project is defined by the contract documents which also form the basis of all claims. The misunderstanding or misinterpretation of these documents which include the contract itself, general and additional conditions, the schedule, drawings and specifications leads to claims and disputes on construction projects (Cushman et. al., 2000). Therefore according to Hughes and Barber (1997), the term claim could be defined as a request, demand, application for compensation or notification of assumed entitlement to which the contractor considers himself entitled, no matter if his consideration is wrong or right, and the agreement of that issue has not been achieved. Claims could be classified by type and by subject (Smith, 1990 and Hughes and Barber, 1997). Mustafa Abedmousa August

60 Classification By Type According to Smith (1990), the claims which may be made in contract are divided into two substantially different types. The first type is claims for breach of contract which is also referred to common law claims and they must be pursued in litigation or arbitration. In this type of claims, the claimant is entitled to recover damages which are calculated on common law principles if he can prove a breach of contract. The second type is claims under the contract. Some provision in the contract, like the clauses shown in table 3-1, which entitles the contractor to payment for loss or expense are arisen this type of claims. The contract itself provides machinery in order to make and settle these claims. Ibid states that, not all of the events which give rise to such a claim should also be led to breaches of contract. In some cases they will and in others will not Classification By Subject The subject-matter of the claims can be used as a base of classification. The categories of claims should be basic, logical and generally applicable. Based on the subject-matter of the claims, Hughes and Barber (1997) state that, they can be classified into the following categories: Claims concerning the applicability or existence of the contract Claims concerning contract documentation Claims concerning the completion of the work Payment claims Disruption and prolongation claims Claims concerning default, determination, etc Causes of Claims In the previous section, the term claim was defined as applied to the circumstances of the construction industry. Moreover, a classification of claims based on the type and the Mustafa Abedmousa August

61 subject matter was carried out. Some of the causes of valid claims are mentioned in the following sections Suspension of Work Under the sub-clause 8.8 of both FIDIC 1999 and PSCC, the engineer has the right to instruct the contractor to suspend the progress of the work or part of it for a reasonable amount of time. The reason and likely extent of the suspension should be known for the contractor to help him to take a proper decision of how to protect, store and secure that part of the works (Totterdill, 2001). As a sequence of the suspension of the work, the contractor who suffers delay and/ or additional cost because of that suspension can claim for damages under the sub-clause 8.9 of the PSCC. Al-Sabah (1997) gives many examples of employer actions which can result in the contractor making claims due to suspension of work. These examples include the employer s deliberate failure to make the site available, delay in approval of shop drawings, delay in issuance of changes, and delay in the issuance of a notice to proceed Variation Orders According to Smith (1990), variations are a fact of life in the construction sector. Therefore a variations clause which is empowering the architect or engineer to order varied work is included in all building and civil engineering contracts. Under sub-clause 13.3 the engineer has the power to issue instructions which may, or may not, represent a variation. In both ways, the contractor should comply with the instruction. In addition, if the contractor considers that instruction as a variation but the engineer disagrees with this consideration, then the contractor can apply for claim (Totterdill, 2001). Smith (1990) and Thomas (1993) affirm that, most of the variations give rise to many problems and have some effect on the progress of the works and the way of carrying out the work. There are many sources of dispute in construction and civil engineering Mustafa Abedmousa August

62 projects. The disagreement between the engineer and the contractor about whether to consider some instructions as variations or not is one source of the disputes causes but not the common one (Smith, 1990, Thomas, 1993 and Totterdill, 2001). According to Smith (1990), the commonest source of dispute in construction projects is the variations valuation since there are many factors which affect the valuation of variations. Thomas (1993) mentions the common factors that affect the valuation of variations. Some of these factors are: The performing conditions or circumstances of the varied work could be different than those contemplated at the tender stage. The reasons of that difference are entirely related to the nature of the variation itself. The change of some quantities may have a significant effect on cost, even if the nature of the work and the method of performing it still unchanged. For example, if the ordered works are for the activities which are considered as critical on the time planning programme. Variations are always ordered in small quantities, this may lead to loss of purchasing discounts and increase the prices which are paid to the subcontractor who may have to return to the site after the original subcontract work was carried out Differing Site Condition When the representation by the employer about site conditions, which is furnished by him to the contractor in order to use it in preparing a bid, differs from the contractor s actually encountered conditions, a claim of differing site condition occurs (Al- Sabah, 1997). According to Smith (1990), practically the differing of site condition problems are the source of many claims under the ICE terms. Moreover, as the construction work starts and especially if the site conditions are not apparent from the contractor s pre-bid site inspection, he may find out that the work required by the contract is different from that Mustafa Abedmousa August

63 shown in the contract documents (Al- Sabah, 1997). According to Ibid, the written prompt notice from the contractor to the employer about the situation of the site is required by most of the clauses related to differing conditions site. The prompt notice allows the owner and/ or the employer to investigate the site, discover the facts and determine the presence or absence of differing site conditions Project Delays If the contractor fails to complete the work on time, i.e. he has not kept to a predetermined schedule, delay will occur. As a consequence of this delay, the costs or the losses suffered by one of the parties will increase. The party who suffers from that delay will claim for extra money, time, or both (Euro Forum, 1995 and Al- Sabah, 1997). There are many different causes for the delays in projects, like lack of access, defective materials, exceptional adverse weather, etc. Since there are a wide variety of reasons of project delays, the engineer should carry out the review in the light of any causes of delay even if they have not been notified to him by the contractor (Al- Sabah, 1997 and Smith, 1990). According to Smith, the aim of this is to preserve the employer s right to claim for liquidated damages. The delay does only give rise to claim for liquidated damages, but also it gives rise to a claim for acceleration whenever the contractor tries to mitigate the damage caused by the delay by adding personal or additional shifts (Al- Sabah, 1997). Fereig and Kartam (2008) who claim that the construction delay is the most common cause of construction disputes and claims for international projects generally, and particularly for projects in the Arabian Gulf area, classify the types of delay as: Non- excusable: when the construction company gets no extra time or additional money and pays liquidated damages. Excusable non- compensable: under this type the construction company just gets extra time for completion of a project. Mustafa Abedmousa August

64 Excusable compensable: when the construction company gets both time and money. Concurrent: when the construction company gets neither money nor time. Moreover, the liquidated damages are not applied Defective Specification and Drawings According to Al- Sabah (1997), if the employer or owner supplies the specifications and the drawings to the contractor, then the contractor will not be responsible of the defects resulting from the design of these drawings. Also, the employer will implicitly warrant the drawings and specifications adequacy Force Majeure Kittani (2008c) states, Israeli sieges and closure are not covered by specific clause under the particular conditions of contract of the PSCC. Thus such the contractor who suffers from that siege can claim for extra time under the clause 19 Force Majeure of PSCC. Moreover, Al- Sabah (1997) affirms that, the differing site conditions which are resulting from the acts of god are not covered by clause related to differing site conditions. Therefore, for instance, no changed condition was found to deal with the situation of increasing of water table levels due to unusually heavy rain Disruption If the contractor is unable to carry out the work in the manner planned, then claims for disruption arise. This type of claim is based on the loss of productivity. Thus, the contractor should prove this loss of productivity in order to be entitled to it (Smith, 1990 and Al- Sabah, 1997). Smith (1990) affirms that, practically, the disruption claims are linked with delay one and it is not easy to separate these two types of claim since they Mustafa Abedmousa August

65 often arise from the same source. The presence of variation work will make the situation more complicated Financing Charges If a payment is not made for the contractor by its due date, then he can claim under the sub-clause 14.8 of the PSCC for financing charge damages. According to Smith (1990), the contractor should not be in an overdraft situation in order to claim finance charges. Moreover, if his financial situation is good, then he will be entitled to the interest which he may otherwise have earned. However if he is in an overdraft situation and he may have to pay a special high rate because of his own credit record, then he will be entitled to the rate of interest normally paid by someone in his position Fluctuations If there are changes in the cost of labour, equipment, materials or other items, then the contractor s claim can be raised only by presence of the table of adjustment data. According to Thomas (1993), a recognized formula which is applied to the monthly value of work done is used for most fluctuating price contracts The Bad Weather PSCC sub-clause 8.4 subparagraph c offers the contractor who suffers from adverse weather condition one of the grounds for extension of time. Therefore, the contractor can claim for extra time as a result of the bad weather Proof of Costs in Damages Claims According to Al- Sabah (1997), to recover losses in a damage claim, the party who suffers from that damage shall prove the amount for any claim with reasonable certainty. The injured party may show the increasing in the costs as a result of losses by providing Mustafa Abedmousa August

66 the actual cost information. If such information is not available, he should provide the estimated cost information which includes the purchase orders, invoices, daily log, ledgers and journals, equipment rental and balance sheets Damages Suffered by Contractors Ibid divides the damages suffered by contractors into five categories as follows: Unused equipment and labour Inefficiency Escalation of labour and materials Extended home office overhead Other recoverable costs being extended insurance and bond costs, litigation costs, interest, consequential damages and claim preparation cost Damages Suffered by Owners or Employers Hosie (1995) and Al- Sabah (1997) classify the damages suffered by the owners or employers as following: Liquidated damages Unliquidated damages Actual delay damages which is caused by the contractor like financing cost, loss of use, overhead, and consequential damages Defective materials and workmanship Mustafa Abedmousa August

67 Abandonment by the contractor 4.7. Extent and Applicability of Construction Claim in Palestine The construction sector in Palestine has its share of the construction claims. In the previous sections some of the causes of construction claims were mentioned. Some of these causes could be faced by the Palestinian contractor and some are not. In order to have a realistic assessment of the existing types of problems and their effects, the author will use two methods. The first method which will be used is analysis of one construction project which was carried out in Palestine in detail. Moreover, a questionnaire survey will be the second used method. The following two chapters of this study include the analysis and the presentation of the two used methods. Mustafa Abedmousa August

68 Chapter Five Case study: Analysis and Results 5.1. Introduction The construction sector in Palestine has had its share of claims as result of construction delays and cost overruns. In order to resolve these claims, the types and the causes of them should be identified and analyzed (Zaneldin, 2006). Al-Sabah (1997) affirms that, most of the construction project will result in a major claim which is causing a huge financial expense not only in terms of financial losses as a result of interest charges, but also in terms of cost of professional involvement in claim analysis and defense. In order to assess that statement, a project has been selected as a case study. This chapter presents the background of the project and explains of the causes of the claims arising. The explanations are offered on the base of background of the project and detailed analysis of the arising claims. As formerly mentioned, as a result of time limited constraint, only one case project is studied. Therefore, it is accepted that the analysis of the case study has not been proved. However, it could give a general idea about the major causes of claims in the Palestinian construction industry. Additionally, further investigation works in the following chapters and the literature review have enabled more analytical rigour to the causes of the claims Overview of the Case The case of constructing a surgery specialized hospital at Ramallah city is studied. The project implemented under the Palestinian Economic Council for Development and Reconstruction s (PECDAR) rules. PECDAR is accountable to a board of trustees which is headed by the Palestinian Authority (PA). The name of this construction project is Kuwaiti Specialized Surgery Hospital which was funded by the Kuwait government. The Mustafa Abedmousa August

69 contractor who performed that project is classified as a first class contractor. Ten million US dollars was allocated to finance the construction and equipping of such hospital. According to PECDAR (2008 b), the grant covered the following: Construction around 5 US million dollars Supply of equipment 3 US million dollars Consultant services and supervision 0.5 US million dollars Training staff 1 US million dollars Unallocated of contingency 0.5 US million dollars The implemented project was tendered through the local paper on bill of quantity basis. Moreover the work was carried out by a Palestinian contractor s firm known as Palestine Development Company Ltd. The technical assistance work and design was conducted by international firm which is known as Design Associates and Research Bureau at Jordan. Table 5-1 gives detail information of the project (see Appendix E Data Collection ). Data Kuwaiti Specialized Surgery Hospital Type of Contract Separate Design and Construction (Bill of Quantities) Tender Price $ 4,869,641 Starting Date 7 th February 2005 Expected Completion Date 7 th February 2007 Actual Completion Date 10 th February2008 Amount of Liquidated Damages $ 2000 per day, for each day or part thereof not substantially complete Limit of Liquidated Damages Total liquidated damages not to exceed (10%) of contract sum Table 5-1: Detail information of the Kuwaiti Specialized Surgery Hospital construction project Source: Developed from PECDAR (2004) and Kittani (2008b) Mustafa Abedmousa August

70 5.3. Problems Identified from the Case Study Project As shown in the table 5-1, the completion date of the project was one year after the expected date of completion. Therefore, the employer was entitled to liquidated damages charges. The amount of liquidated damages is 10% of the tender value $486,964.1 which is the upper limit of the liquidated damages. On the other hand, the contractor s submitted a total value of claim equal to $ 249, which is about 5% of the tender value. Moreover, the contractor has extension for time of completion claims. However, all of the contractor s claims were not organized and were not based on any specific clauses, i.e. the contractor does not have a well organized construction administration team to keep impeccable records. Additionally, most of the contractor s claims seem like a wish list and not accurate claims. The project was completed in February 2008, but the claims have not been settled until now. Therefore, the author analyzes these claims based on UK best practices and other conditions of contract books like the PSCC The Value of Employer s and contractor s Claims As mentioned before, the only claim from employer against the contractor was the liquidated damages claim which was counted to 10% of the tender value. However the contractor has submitted many financial claims as well as extension of time ones which were not based on any clause of conditions of contract. Table 5-2 shows the claims concerning payment for work done outside the contract and their costs. In addition the table shows the percentage of the value of each claim to the total value of claims. This table has been carried out based on the estimation of the contractor. The claims concerning time and money are shown in the table 5-3. As shown from the table, the fifth claim is a variation claim; therefore it should be studied under variation order. Hence the percentage of the variation order as a cause of claim is counted to be 21.48%. Mustafa Abedmousa August

71 Claim no. Description for the claim Claim amount ($) Percentage to the total amount of claims (%) 1 Excavation to reduced level 1, B Variations Order 37, Column neck and underground walls 2, Extra quantities of concrete for southern 4, boundary retaining wall 4 Extra quantities of concrete suspended slabs 10, Removal of stone wall in connection building entrance 7 Extra over for stone in connection building 18, C Fluctuation in the price of construction materials 8 Abnormal increase in the price of steel 141, D Interest Charges 10 Increase in the contract registration fees 19, Table 5-2: Analysis of the financial claims based on the contractor s estimation Claim Description for the claim no. 5 Indemnities against the increase of floor height by 50 cm 9 Indemnity for delay in payment of variations and extra quantities Claim Percentage to the amount total amount of ($) claims (%) 16, , Table 5-3: Analysis of the financial and time claims based on the contractor s estimation Mustafa Abedmousa August

72 From both tables 5-2 and 5-3, it is shown that the main cause of claims was the increase in the price of steel close to 56.9% of the submitted claims. The second most important cause is a variations order which estimated to 21.48%. Additionally, the results of this analysis indicate that the different site conditions is the least important cause of money claims and its percentage to the total summation of the claims is 0.5%. The analysis of claims concerning time is shown in table 5-4. It is based on both contractor s and engineer s estimations. From table 5-1, the expected duration to finish the project was 2 years. In addition the delay duration in this construction project was 465 days which adds a percentage of 62% to the expected completion date. The results of this analysis indicate that, according to the contractor estimations, the significant delay problem in the Kuwaiti Specialized Surgery Hospital construction project was the claim no. D variation which is not included under sub-clause 13.3 of PSCC for adjustment to the time for completion. The percentage of this claim to the total project delay claims is estimated to be 49%. However, according to the engineer s estimation, the results show that the delay problem in this project was 136 days which adds a percentage of 19% to the expected completion date. The majority of the delays in the completion time of the project are the late instructions and the variations which are representing percentages of 45% and 44% respectively. By having a look through table 5-4, it is clear that there is a variation between the engineer s estimations and the contractor s one. Additionally, the contractor s estimations exceeds the engineer s one by more than 250%. Since the claims of extension for completion time have not settled yet, the author will use the UK best practice to be as adjudicator between the two parties. This best practice will be used for all of the claims which are under the three kinds of the claims i.e. claims that concern money, time and both of them as shown in the following sections of this chapter. Mustafa Abedmousa August

73 Claim No. The reason of extension for time completion Contractor s estimation of engineer s estimation (Based on contractor s request for required required extension of contract period). extension period (day) extension (day) A Exceptionally adverse weather 2 0 conditions A-1 Heavily raining and foggily day 1 0 A-2 Windy and heavily raining day 1 0 B Special circumstances outside 5 2 both parties control B-1 Closure of the check points in the 2 1 West Bank by Israeli enemies B-2 Same as B C Delays caused by Authorities 5 3 C-1 Stopping of the work in the project 5 3 site by the municipality of Ramallha D A variation which is not included under sub-clause 13.3 of PSCC for adjustment to the time for completion D-1 Extending the electric room. This 4 2 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 3 0 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. D-5 Adjustments in the operation room which lead to delay importing of the electric board D-6 Change in the characteristic of the 30 7 uninterruptible power supply (UPS) which leads to delay in its importing process. of period Table 5-4: Summary of the claims concerning time in the project based on both the contactor s and the engineer s estimations Mustafa Abedmousa August

74 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 3 1 engineer related to the design of the entrance gate of the connection building. F Delays because of work by the employer or those for whom he is responsible F-1 Redesign of the conditioning system 30 7 F-2 Mechanically adjustment works are carried out at the sterilizing room in the second basement floor 9 3 Cont. of table 5-4: Summary of the claims concerning time in the project based on both the contactor s and the engineer s estimations 5.5. Results and Analysis of the Claims As previously stated, since the claims of the contractor against employer are not settled yet, the author decides to use the best practice of the UK in order to analyze these claims. As well as, he looks through the PSCC contract book and the contract of the project in order to make his final decision (copies of both the PSCC and the contract of the project are available in the CD attached with the dissertation in Appendix D). The claim report for additional money or compensation and the one example of the forms for extension of contract period submitted by the contractor are shown in Appendix E-3. The other forms are available in the CD attached with the dissertation in Appendix E-4. By looking at these claims reports, it is clear that both the money claim report and the forms for extension of the completion date look like wish lists and not exact claims reports. These reports suffer form lack of sound, comprehensive and persuasive submission which sets out the basis upon which the claim is made and the contractor s claim (Thomas, 1993). Mustafa Abedmousa August

75 According to Ibid, the formal claim submission which is setting out the contractual basis and the detailed analysis of the rights of the contractor and his entitlements should include: Introduction: contract particular This section should include information like the names of the parties, description of the work, liquidated damages for delay, the programme, etc. Summary of facts Under this section the date of commencement, summary of application for extensions of time, the entitled extension of time, summary of the submitted claims and other information should be included. Basis of the claim The contract clauses which are relied upon, common law provisions and contractual analysis and explanation of the claim basis should be stated in the claim report. Details of claim Under this section, every matter which is the subject of the claim should be written in detail. Moreover, each separate issue must be warily specified in a logical format. Evaluation of claim The head of each claim should be calculated with explanations and reasons for the method adopted. As well as the supporting source documents should be given in an appendix. Therefore, the examination of such documents can be carried out by the recipient. Mustafa Abedmousa August

76 Statement of claim It is a brief statement which is setting out the alleged entitlements of the claimant and relief sought. Appendixes It contains copies of all documents that is referred to the claim like programmes, diagrams, and financial data Money Claims According to the project manager of the Kuwaiti Specialized Hospital project, there were some work conditions which were raised during carrying out the works (see Appendix E- 3). He said that, based on the clause 53 of the general conditions of contract the following works are hereby claimed in order to be paid and settled with the final payment of the contract: Excavation to reduce level o Summary of the claim According to the contractor s claim report of Kuwaiti Specialized Hospital project, during the excavation process and when the reduce levels assigned in the contract drawings were reached, a coherent bed rock 50 cm thick was found in the site. According to the Project manager it was inappropriate to remove part of this rock since it cracked. Therefore it was removed completely. As a result of that removal the reached reduce level was about 22.5 cm lower than the required level in the design and drawings. Moreover, the contractor notified the supervisor of this situation and requested that the extra excavation to be measured and paid through Mustafa Abedmousa August

77 the interim payment, but this request was denied. The value of this claim was $ US (see Appendix E-3). o Claim Discussion Smith Point view The majority of claims flow from the variations or changes in the work but the claim of excavation to reduce level is associated with the nature of the site land i.e. ground condition (Smith, 1990). Under the general rule, the contractor can not have any claim for damages against the employer if there is not any specific guarantee or definite representations about the site conditions, nature of the ground, etc. by the employer. Smith emphasizes that the duty of the contractor, which is mentioned in clause 11 of the fifth edition of the ICE, to have inspected and examined the site, and his responsibility to satisfy himself as to the nature of the ground and sub-soil should be practicable. Moreover the contractor should be taken in to account any information that is provided by or on behalf of the employer. Despite that, the contractor can still have claims under clause 12 of the same contracts book if the nature of the site or condition is different from the foreseen, and this condition probably can not have been foreseen reasonably by an experienced contractor. Furthermore, Smith concludes that in practice adverse of physical conditions leads to have many claims under ICE terms. As previously mentioned, it can be concluded that Clause 11 of the ICE has a limiting effect on reducing claims, since: 1. The investigation of the site by the contractor through the pre-tendering stage could be limited by the time available to do so. Mustafa Abedmousa August

78 2. It seems very difficult to an experienced contractor to check and test the extensive information given by the employer about the condition or nature of the site. This information will be a guide and the contractor will reasonably attach to it through tendering stage. Finally Smith points out that the disclaimer responsibility which might be used by the employer to protect himself will not exclude the liability for recklessness, which many courts seem prone to impose liability if it is possible to do so (Smith, 1990, P.58). Claim discussion based on tendering requirements and condition of contract of the Kuwaiti Surgery Specialized Hospital As mentioned before, the fourth edition of the conditions of the contract for Works of Civil Engineering Construction, reprinted in 1992 with further amendments as prepared by Federation International Des Ingenious Conceals (FIDIC), has been used as general conditions of this contract with some amended by conditions of particular application (see Appendix D). PECDAR (2004) under the instruction to tenderers clauses 2.6 and 2.7 the site visiting and physical conditions respectively states that, it is the own contractor s responsibility to visit the site and obtain all information which may be necessary for the purpose of submitting a tender and entering into contract. Moreover, any query related to the site should be submitted in writing to the engineer. Furthermore, making local and independent examination and enquiries to the site physical conditions and obtaining the information which could influence the contractor in submitting the tender and fixing the rates in the BOQ is the contractor s/ tenderer s responsibility. Clause 2.7 affirms that the contractor/ tenderer should satisfy himself as to the risks. I.e. the site condition is a contractor risk. This statement is pretty obvious in the required certificate of the tenderer s visit to the site, it states that: Mustafa Abedmousa August

79 Having previously studied the contract documents, I have carefully examined the said site. and that my failure to visit the site will not relieve me of my responsibility for properly estimating the cost of the work and that I will not be entitled for any claims for additional costs on the grounds of not being familiar with the location and / or nature of the site. (PECDAR, 2004, page 23). Discussion of the claim under the Palestinian standard construction contracts (PSCC) Under clause 4 of the general condition of PSCC which is based on FIDIC 1999, clause 4.10 site data points out that any employer s available information related to the sub-surface and hydrological condition at the site should be made available by the employer to the contractor s both prior and after the base date. However the contractor is responsible for interpreting all such data. Moreover, it affirms that the contractor shall be deemed to have obtained all necessary information as to risks (Totterdill, 1999) taking in to account the cost and time factors. Furthermore, the contractor should examine and inspect all information, as well as he should have been satisfied before the submission of the tender with all relevant matters like the nature and form of the site, including sub-surface conditions. However the contractor can have a claim under clause 4.12 unforeseen physical conditions of the site which exclude the climatic condition. If there are such conditions the contractor should inform the engineer about that as soon as practicable. Moreover, he should be entailed to sub-clause 20.1 if these conditions will delay the day of completion or/ and incur cost within his letter. The engineer should inspect that unforeseen conditions in accordance with sub-clause 3.5 to agree and inspect to which extent that these conditions are unforeseen, to which extent this claims will cause delaying for the day of completion, and the cost of that claim. The proof of foreseen physical Mustafa Abedmousa August

80 conditions which is given by the contractor at submitting the tender might be taken into account by the engineer. However he is not bound by any such evidence. The author agrees with the Smith s point of view since it is very difficult or even impossible to carry out a proper investigation of the site by the contractor through the pre-tendering stage during a limited time. Therefore, the contractor is entailed to the value of this claim. Claims 2 to 7 o Summary of the claim The second to the fifth claims are covered under definition of variations under the fourth edition of FIDIC international condition published in the The second claim is basically a direct result from the first claim Excavation to reduce level. The contractor claims that the quantity of work included in the contract is increased because of the additional height of 22.5 cm of the excavation level. The third claim is covered under the essentially additional work of any kind that should be carried out in order to complete the works stated in the BOQ appropriately. Once the contractor used extra quantities of concrete to ensure adequate coverage to steel reinforcement which is a quality issue, the fourth claim could be studied under changes in the quality of the work which leads to increase the quantity of work included in the contract (Smith, 1990). According to Ibid, the contractor s fifth claim might be covered under the changes in the levels of any part of work which is essential to harmonize the levels with the adjacent building. The removal of stone wall has been constructed by the contractor is the sixth claim which could be studied under changes in the nature or quality of any part of the work. However the seventh claims which is using special stone pieces that required special efforts and using tower crane can not be covered under Mustafa Abedmousa August

81 FIDIC variation definition. The seventh claim is added to the contract in the later stage to the signing of contract. o Discussion of the claims According to Smith (1990), these types of claims are studied under the variations clause which is empowering the engineer to order varied works. As these claims are covered by definition of variations under the fourth edition of FIDIC international condition 1987 which was reprinted in Taking in to account that any variation might be initiated by the project engineer at any time before issuing of the works taking-over certificate, each variation may include (PSCC, 2006 and Smith, 1990): 1. Increase or decrease of the work quantity which is included in the contract. However according to PSCC (2006), such changes of the quantity do not essentially constitute a variation 2. Any work to be omitted unless it will be executed by others 3. Changes to the levels, positions and / or dimensions of any element of the work 4. Changes in the nature or quality of any part of the work 5. Carrying out of additional work which is necessary for the permanent works. This could include any associated tests on completion or any other tests 6. If any specified sequence of timing of construction of any part of the work is exposed to changes Mustafa Abedmousa August

82 Moreover, the change or alteration of permanent works shall not be made by the contractor unless there is an approval or instructions by the engineer. Although the second claim is included under the variation definition, there was not any letter from the engineer. This might be because it quite obvious that the contractor should increase the heights of the walls and the columns. I.e. it is not a variation issue. Likewise the owner can consider this claim as the contractor s fault. But if the owner or the engineer accepts that claim, they probably deal with it under the clause 12 measurement and evaluation. The rate of this claim will be the same rate used in the BOQ since this work is extension to some items in it (Smith, 1990, PPSC, 2006). From previously mentioned, it is clear that there are more misunderstanding and disputes about variations than any other aspect of construction contracts. Therefore and according to Smith s view looking at the contract and discovering exactly what the contractor agreed to do in the first place is the starting point in order to resolve this dispute. Furthermore each party should keep in their mind that if the work is not covered by the bills or specifications, this does not always mean that the contractor is entitled to extra payment for it. Hence the author thinks that this claim should be considered and the payment should be made based on the BOQ rates of the similar items, since the work was executed under similar conditions of these items. In the third and fourth claims, the contractor carried out extra works but he did not mentioned in his claims report that the engineer was ordered any variation, which should be for a reason that is essential for satisfactory completion and functioning of the works (Smith, 1990). The author argues that the contractor is not entitled to the values of these two claims. The argument is based on Smith s view which is that the employer is not bound to pay for things that each party must have understood are to be done but which happen to be omitted from the quantities. In addition, the contractor should visit the site through pre-tendering stage which could help him in order to price each item in the BOQ. Therefore if he makes a mistake during pricing Mustafa Abedmousa August

83 the bills it will be his responsibility not the owner. For the fourth claim, according to Kittani (2008b), there was not any instruction from the engineer in order to increase the concrete cover, but the contractor claimed that the drawings and the design of steel cages in steel led to that (see interview B-4in Appendix B). Both the PPSC and Smith have the same argument that the contractor can carry out such work but he should inform the engineer about that issue which could be done under sub-clause 13.2 value of engineering. This could be carried out under a written proposal done by the contractor. In this claim he did not do it, therefore it will be his responsibility to carry the value of that claim. The fifth claim is related to variations ordered by the engineer. Since the work is of a similar character and is carried out under the similar conditions, the rates and prices in the BOQ shall be used as a basis for the fair valuation that may be made (Smith, 1990). This means that, the author affirms that the employer should pay extra amount of money for the contractor since he performed that work. But the price in the BOQ should be use as the basis of the evaluation. Since there was engineer s instruction to remove an already constructed work, the sixth claim could be studied under changes in the nature or quality of any part of the work. Moreover that order was carried out before the maintenance period i.e. the engineer still has the power to order variation. Based on previously mentioned information, the owner should pay that claim. The seventh claim can not be taken under variation clause since as mentioned before that the work was ordered before signing the contract and the bill was professionally prepared which is necessary in the employer s interest in order to protect him from financial claims. This problem seems to arise because of the contractor s unwillingness to provide a breakdown of his bill rates when requested. I.e. the contractor made his valuation in a vacuum. Therefore he should carry that value of the claim. Mustafa Abedmousa August

84 Abnormal increase in the price o summary of the claim According to the claims report, the price of the reinforcement steel was abnormally increased, and such abnormal increases could not be anticipated during the pricing of contract. Therefore the contractor claims for an increase of the price for the quantities of used steel in the project. The value of that claim is $ as shown in Appendix E-3. o Discussion of the claim Firstly, this claim is not easy to analysis. Since from one hand, such type of claims could be studied under fluctuations which are the third mechanism by which the sum of the contract may reliably be adapted (Murdoch and Hughes, 2000). The subclause 13-7 under FIDIC 1999 adjustment for changes in cost and fluctuations clauses under ICE7 are optional. In order to apply the sub-clause 13-7, a completed table for adjustment data which is included in the Tender appendix is required. In the absence of such table this sub-clause shall not apply (Totterdill, 1999). According to Murdoch and Hughes (2000), the clauses related to Fluctuations under ICE 7 approaches is optional and are printed individually from reminder of the contract and are dependant on published indexes. Furthermore a special condition should be added to the contract in order to bring them in to force. All of the previously mentioned information is also pointed out by Trickey (1990). According to him that any contractor who seeks financial adjustment in the event of a change in the prices of market should prepare a list of materials that is expected their prices will be changed which is known as basic price list. On the other hand, the contractor of this project is in delay. Therefore he shall not benefit from the fluctuation clause as stated in ICE 7 (Murdoch and Hughes 2000). Furthermore Mustafa Abedmousa August

85 according to the specific conditions of the PSCC, the sub clause 13-7 has not applied at any construction project in Palestine yet. The conditions of this contract say that contractor will not be entitled for any claims for additional costs on the ground of an increase in any of the rates or prices shown in the works schedule. Under sub-clause the contractor is responsible to include in the price of contract for all costs, charges and expenses whatsoever which may be incurred by him and all risks involved in giving effect to the provisions of this clause (PECDAR, 2004). In addition, under sub-clause related to the increase or decrease of the cost was replaced by another statement which informs that the owner will not make any payment to the contractor on account of increase in market prices of materials or goods specified for carried out the works which may occur after submission of the tender. The author is not agreeing with all of the previously mentioned point of views since the circumstances of the cost of steel are totally exception and beyond the ability of an experienced contractor to foresee or allow for. Therefore the proper solution could be by looking to this situation as an act of god where the client, as a sign of god will, might be asked to consider an ex-gratia payment (i.e. one which is extracontractual). Indemnity for delay in payment of variations and extra quantities o Summary of the Claim According to the claim report although both the engineer and the employer completed the variation order in appropriate time from the date of ordered, the payments were delayed ten months due to the limitation of the contract budget. Also, the interim payment number 17 was partially paid by the employer. Therefore in order to carry out the work and to pay for materials and to subcontractors, the contractor was forced to issue the bank facilities and to take loans with interest. Mustafa Abedmousa August

86 Hence he claims that the employer should pay the damages of that delay. The total value of this claim is $ o Claim Discussion The ninth claim can be studied under the financial charges for the delayed payment or special damage. Maintaining cash flow and payment for any project is very important, since without that the contractor will be in a difficult financial situation and will face with a lot of troubles by his failure to pay his own sub-contractors and paying for used materials in the construction (Brown and Jones, 1995). The work done, including where appropriate the ascertained value of any variation ordered, should be paid for the contractor since he is of course entitled under the contract (Smith, 1990, PSCC,2006 and Murdoch and Hughes, 2000). Smith (1990) emphasizes that money claims which covers both additional works and costs including any arising of cost from delay or disruption to progress as a result of variations ordered by the engineer and other specified matters can be made under clause 6.1 of ICE. Smith describes that rate under ICE conditions of contract as a very modest rate. According to Ibid, The contractor can claim for finance charges even if he is not in an overdraft situation. But if the overdraft interest is concerned, the contractor can readily obtain the supporting evidence from his bankers. Moreover the interest rate, which he is entitled to it, is usually paid by someone in his position and not according to his own credit record. The employer can use the House Of Lords rule which is restated the old common law rule in order to avoid any payment of interest on a debt due. Both Hughes and Murdoch (2000) and Smith (1990) mention that rule which is basically if there is not agreement regarding payment of interest on a debt due between parties, the late debt payment does not attract interest as general damage. However Smith argues that the House of Lords rule is overruled either in case of contractors and/ or Mustafa Abedmousa August

87 expense or otherwise. Furthermore the position will be different if a dispute is taken to court or arbitration. According to Ibid the courts and arbitration allow the contractor to award interest in two cases: Where a dept is lately paid after proceeding for its recovery has commenced, but before they have been concluded. Where a dept is still unpaid until award or judgment. The clear and settled law in construction industry is that the financing charges or interest are recoverable under the delayed payment provision of the PSCC. Under both the PSCC general and specific conditions of contract, the monthly approved submitted statement, which is showing in detail the amounts to which the contractor considers himself to be entitled, shall include many items. One of these items is the estimated contract value of the works performed and the documents of the contractor produced up to the end of the month. This item is including variations but excluding others mentioned in the other items that statement should include. The payment of the amount certified in each interim payment certificate shall be done within 56 days after the engineer receives the statement and supporting documents. Since that was not the case in this project, the contractor shall be entitled to receive financing charges on the amount unpaid during the period of delay. Sub-clause 14.8 gives the procedures for calculating the interest which is due to the contractor because of the delaying in payment of the certified amount. Referring to contract conditions of this case, the payment to the contractor will be carried out on the basis of the engineer s valuation of the performed works and certificates of interim payment which is issued by him. By looking to appendix of the tender, the employer states that the time within which payment to be made is 42 days of engineer certificate. Mustafa Abedmousa August

88 Based on the previously discussion the author agrees with both Smith s and PSCC s judgments. Moreover he agrees with smith s point of view regarding the rule of the House of Lords. The limiting budget of the employer is not a reasonable reason in order to delay the payment, there is a clear clause under the conditions of the contract specifies the time when the approved interim shall be paid. And according to the claim report both the employer and his engineer had agreed that variation. Hence the author concludes that the employer shall be able to pay this amount to the contractor without formal notice or certification and without prejudice to any other right. The increasing in contract registration fees o Summary of the claim The contractor claims for 0.4% increasing of the contract value. This increasing happens since the ministry of finance has increased the percentage for the registration of the contract from 0.4% to 0.8%. The value of this claim is $ (see Appendix E-3). o Discussion of the claim The discussed claim is similar to the eighth claim, but the difference between them is that the tenth claim can be studied under adjustment for changes in legislation however that claim as previously mentioned could be studied under fluctuations clauses that deal with changes of the market price of the materials. Therefore all of mentioned opinions are applied here with some changes which are as follows: This claim is covered under sub-clause 13.7 of PSCC. According to that subclause, if there is a change in the law of the country and this change will affect the contract, the price of the contract shall be adjusted in order to take account of any increase or decrease in cost resulting from that modify. If the contractor Mustafa Abedmousa August

89 suffers additional cost and /or delay and such laws made after the base date, then he shall submit a claim. The contractor of this project is in delay. Thus if this change occurs or takes place after the completion date of the project, then it will be the contractor responsibility. The author sticks in his decision to the rule under ICE 7 which is mentioned by Murdoch and Hughes (2000) in their book Constriction Contract which is: Both JTC 98 and ICE 7 specifically provide that a contractor who is in delay shall not benefit from the fluctuations clause. Hence the author accepts the contractor s claim under two conditions. Firstly that the change in legislation which is affected the contractor has been occurred after the submission of the tender. Secondly this change should be happened before the employer s proposed date of completion. Otherwise it will be the contractor responsibility. o Results of the analysis The discussion indicated that, the report of the contractor s claims for compensation was not written in the formal way for submission of the claims. Additionally, that report was looked like a wish list of the contractor. The final decision of the author, which was based on many contract books and other books that have been discussed and stated some of the problems were faced by contractors, subcontractors, engineers and client in making and settling of construction claims, are shown in table 5-5 and 5-6. In the tables 5-5 and 5-6, the claim number and its description based on the claim report as well as its amount are printed as how it looks like in tables 5-2 and 5-3 in the previous section. However tables below, the author gives his decision for each of these claims in a separate column as shown on these tables. In that column he has Mustafa Abedmousa August

90 summarized his decision in few words and the reason of that decision was previously stated in the discussion of each claim. For example the author describes the claim no. 10 as Conditionally paid ; this means the contractor is entitled to his claim for extra money if the two conditions mentioned by the author are achieved. Claim no. Description for the claim Claim amount Author s evaluations ($) 1 Excavation to reduced level 1, It should be paid by the employer. B Variations Order 2 Column neck and under-ground walls 2, It should be paid using the rates in the BOQ. 3 Extra quantities of concrete for southern boundary retaining wall 4,920 Shall not be paid (contractor s fault) 4 Extra quantities of concrete suspended slabs 10,373.1 Shall not be paid (contractor s fault) 6 Removal of stone wall in connection It should be paid building entrance 7 Extra over for stone in connection building 18,500 Shall not be paid (contractor s fault) C Fluctuation in the price of construction materials 8 Abnormal increase in the price of steel 141, Might look at it as act of god. D Interest Charges 10 Increase in the contract registration fees 19, Conditionally paid Table 5-5: The author s evaluations for the claims concerning only money Mustafa Abedmousa August

91 Claim Description for the claim no. 5 Indemnities against the increase of floor height by 50 cm 9 Indemnity for delay in payment of variations and extra quantities Claim Author s amount evaluations ($) 16, It should be paid using the rates in the BOQ. 33,120 It should be paid Table 5-6: The author s evaluations for the claims concerning both time and money Claims concerning time In this part, the claims concerning time are analyzed. According to Hughes and Barber (1997) entitlement to payment is not established by a contractor for all extension of time claims. The contractor s entitlement to payment can be decided based on the cause of the delay. Therefore this section deals with both project case study claims for extension of time for completion and those for monetary compensation of time-related cost arising out of delay which connects with an extension of time for completion. 1. Claims concerning extension of time for completion Liquidated damage clauses and extension of time provisions which are added to a contract for benefit of both the employer and the contractor are strongly interrelated. The effect extension of time provisions is to reduce the contractor s liability to liquidated damage, as well as keeping in place a date for completion and the right for deduct liquidated damage which are for the benefit of the employer (Smith, 1990, Thomas, 1993 and Hughes and Barber, 1997). The extension of time for completion shall to be sensible and fair not only for the contractor but also for the employer (Smith, 1990). Mustafa Abedmousa August

92 Hughes and Barber (1997) state, the considerations of extension of time shall only apply to the individual periods of delay on the critical path or a path made critical because of delays. Therefore during the analysis of the extension of time for completion claims in the case study, the contractor s time project programme available from the CD under Appendix E-5, which is carried out using Ms-project software, will be used. The claims concerning extension of completion date are shown in the table 5-4 above. In that table the estimation of required extension of time for completion is shown based on the both contractor s and engineer s analysis for every claim for extension of completion time in the studied project. Exceptionally adverse weather conditions Exceptionally adverse weather conditions is one of the grounds for extension of time under PSCC sub-clause 8.4 and its definition which is not of that precise covers extremes of heat and dryness as well as bad weather. According to Smith (1990), to apply such that definition a comparatively unusual severity is required since it is expected that the contractor will programme his work to take account of the normally expected weather conditions at that time of the year. Furthermore in considering weather problems, it shall take to account that there can be extension of time only if the whole of the project is actually delayed (Murdoch and Hughes, 2000). Similarly Hughes and Barber (1997) affirm that the contractor would be entitled to an extension of time for the period of inclement weather plus a small margin for regaining tempo. However, the contractor will not normally qualify for compensation (Thomas, 1993 and Hughes and Barber, 1997). Trickey (1990) repeats predisposition of the previously mentioned writers to put the delay due to causes outside the control of both parties, which is here the exceptionally adverse weather conditions, at the risk of the employer. In order to determine whether the condition of the weather is exceptional or not the public records or weather charts covering a long period and relevant to the project site area should be used to judge that situation. The word exceptionally must be considered Mustafa Abedmousa August

93 not only according to the time of the year. But also, the conditions predicted in the document of contract shall take in to account (Smith, 1990). If this cause of delay is parallel or concurrent to other causes which may give rise to a financial claim like for example late information which is not necessarily delay the completion date, the contractor is not entitled to loss and /or expense. Hence according to Smith s argument the contractor can argue for an extension of time on the ground does not give rise to a loss and or expense. By having a look through the request for extension of contract period, there had been delay because of the bad weather for two days. The contractor had applied for an extension of time about that situation, but according to engineer s evaluation the heavy rain is not exceptional in Palestine in winter months. Therefore he did not give the contractor any extension of time. Although the whole of project is actually delayed, the author agrees with the engineer in his evaluation since the project had been started in winter months. Author s decision is a repeat of Smith s point of view about the word exceptionally which should be measured according to both the condition predicted in the document of the contract and the time of the year. Hence the author thinks that the contractor shall take to account some situation like that during doing his planning programme. Special circumstances outside control o Events giving rise to the claim During first construction stage, most of the checkpoints in the West Bank were closed by the Israeli occupation enemies for five days thus most of the labours did not have the opportunity to arrive to the project site. That situation was outside the contractor control. Hence he had applied for five days extension of time for the day of completion. The engineer argued that the Mustafa Abedmousa August

94 contract was signed in a similar situation and accepted to give the contractor only two days as extension of time. o Claim discussion The situation can be studied under one of the ICE eight grounds for an extension of the period for completion. That ground is any special circumstance which is outside the contractor s control (Smith, 1990). Such this delay can be considered as a cause of delay under subparagraph (b) of the Extension of time for completion sub-clause which is the sub-clause 8.4 in the PSCC general contract conditions. That subparagraph states the contractor shall be entitled to an extension of time for completion by a cause of delay giving an entitlement to extension of time under a sub-clause of these conditions (Totterdill, 1999). Since the delay is due to cause outside the control of the contractor, it should be put at the employer risk (Trickey, 1990). The author agrees with Tricky s opinion since the delay is due to cause outside both parties closure of checkpoint. Also, the claim can not be studied as force majeure since the carrying out the contract is not neither wholly impossible nor merely temporarily impossible (Murdoch and Hughes, 2000). The closures of the checkpoints had an effect on the critical path since it made continuance of the work impracticable. Hence the author agrees to give five days as an extension of time. In addition the Author does not agree with the engineer in his evaluation of that claim since the contractor can not take in his account some situations like this during carrying out his planning programme. Mustafa Abedmousa August

95 Delays caused by Authorities o Events giving rise to claims The contractor is claiming for delay arising out since municipality of Ramallha had forced his labours to stop the work carried out at the east wall of the hospital for five days. Therefore he had applied for an extension of time for completion. In that application he asked the employer to extend the time of completion for five days. The engineer accepted to give the contractor only three days as extension of time since the work was partially stopped for just three days. o Discussion of the claim The sub-clause 8.5 in PSCC gives bases for an extension of time for completion based on the subparagraph b of clause 8.4 previously mentioned. Delay by authorities which directly affects contractor s works is one ground of those bases. According to Murdoch and Hughes (2000), the contractor can use that as a reason for claiming if he has had no knowledge of the matter at tender date. The description of this claim is not enough for the author in order to make his final decision. Given that the exercise by the municipality, which has the power to stop the contractor from carrying his work, directly affects the works and cause a delay. On the other hand, according to the engineer only part of the project is actually delayed. Therefore it is important to know in which activities the delay had happened, and whether that activities are critical or made critical because of delay. Because of insufficient information the author is not going to give any estimation for the extension of time required. Mustafa Abedmousa August

96 A variation which is not included under sub-clause 13.3 of PSCC As previously mentioned variations to the work can not be avoided. Therefore, all of the standard forms of contract include certain clauses to deal with them. However, having a variation does not mean that the progress of the work must be affected. Also some variations can be made without any change in the technique, sequence and cost of the work to be done in the variation (Thomas, 1993). According to Ibid, practically most of the variations have some consequence on the progress of the work and the method of performing the work. It is important to take into account all of the delaying elements which are directly related to the variation through valuation of each variation. In this section, some variations caused delays and the contractor claimed for an extra time required. He basically said he would be require an extension of time of 222 days but the engineer accepted to give him only 60 days. Before discussing the engineer decision, it is important to know which of these events, which are giving rise to claim, are caused a period of delay on the critical path or a path made critical because of delays. Table 5-7 shows the varied activities with a classification based on the effect of them on the critical path or a path made critical because of delays. The time planning programme which is performed using Ms-project is available in the CD submitted with this research (see Appendix E-5). These claims are studied under sub-clause 8.4 of PSCC. According to it, a variation of an item included in the contract is one of causes for an extension of time for completion. The contractor is entitled to it if and to the extent the completion of that work will be delayed. Furthermore the contractor is not entitled to additional payment under this clause. Both Smith (1990) and Thomas (1993) have the same point of view which is mentioned in the PSCC. Mustafa Abedmousa August

97 Claim no. Description of the claim Affecting critical path or no D-1 Extending the electric room. This delays the concreting Has an effect process for the ground floor D-2 Adjustment in the structure of the first basement floor by Has an effect adding two new rooms. D-3 Replacement the old gate of MRI room with a new one No effect D-4 Building a three more floors as connection building between the Kuwaiti Hospital and another hospital near to it. 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. Insufficient information Has an effect Path made critical because of delays Table 5-7: Classification of the claims required an extension of time Hence the author agrees to give the contractor an extension for time for all of the claims except D-3 and D-4. Since all of the claims excluding D-3 cause an individual periods of delay on the critical path or a path made critical because of delays. Furthermore, for the D-4 claim, the contractor accepts to carry out the extra three floors for the connection building through the same duration of the original contract and the quantities were added to the bill of quantity of that project. Therefore it is the contractor fault to accept carrying out a lot of work in a very short period. Finally, the contractor s estimation for the sixth claim is not reasonable since according the project engineer the item related to uninterruptible power supply (UPS) is separated item under the condition of the contract. Thus the engineer s evaluation is acceptable and makes sense for the author. But he agrees with the contractor s estimation of the other claims.. Mustafa Abedmousa August

98 Contractor not having received in due time necessary instructions o Summary of the events giving rise to claims The owner ordered an extra work of $26,000 and the contractor accepted to carry out that extra work. In fact, that extra work was great in value and took a relatively long time to carry out due to the late of instructions from the employer. Consequently the contractor had applied for an extension of period for completion. Indeed he claimed for additional 180 days but the engineer accepted to give him only 60 days. o Discussion Murdoch and Hughes (2000) state, it is expected that the contractor will be supplied with the required information to carry out the work by the contract administer. Moreover, the contractor will be entitled to recover damages if there is a failure to supply drawings or instructions at the right time. The subclause 1.9 in the PSCC means late in supplying necessary information is not only leading to an action for damages, but also it can be a ground for an extension of time for completion on which the contractor is entitled. The contractor s claim for an extension of time on the ground of he not having received necessary instructions in due time is unlike the claim for damages. Both sub-clause 1.9 in PSCC and Murdoch and Hughes (2000) affirm, the contractor can apply for an extension of time on the grounds of late supply of necessary information or drawings if only that information have previously been requested by the contractor. The time of the detailed notice shall be neither unreasonably distant from nor unfairly close to the time when the necessary information is required. If the engineer fails to issue the notified drawings or instruction within a reasonable time, the contractor can apply for an extension of the period for completion (Smith 1990, PSCC 2006). Mustafa Abedmousa August

99 The contractor had submitted the detailed notice to the engineer. But the engineer failed to issue the required information within a reasonable time. Therefore the author agrees to give the contractor an extension of time for completion. Since the contractor has not given any detail of his estimation to the extension required, then the author sticks with the estimation of the engineer for the extension of period for completion. Delays because of work by the employer or those for whom he is responsible The contractor claims that the work carried out by other contractors for whom the employer is responsible had affected the work carried out by him and caused a delay. Therefore he had applied for an extension of period for completion. According to Murdoch and Hughes (2000), the employer can carry out parts of works either directly or through another contractor. Also, such work could offer the contractor grounds for extension of period for completion. Subparagraph (e) under sub-clause 8.4 of the PSCC affirms that the contractor shall be entitled to an extension of time if any delay caused by employer either directly or through other employer s contractors on the site. In the project site of the Hospital, the contractor suffered from a delay as a result of works by other contractors whom the employer is responsible. The delay of that work had affected the contractor to carry out his work. Also he was not able to be stuck to his planning programme as all of the activities carried out in the second basement were at the critical path. Therefore, the author agrees to give him an extension of period for completion. The engineer s estimation is the adequate one for the author as there is not any information that describes the contractor s estimation to his extension required. Mustafa Abedmousa August

100 Estimation (days) Construction Claims in Palestine o Results of the analysis A summary of the previous discussion is shown in table 5-8 which shows the evaluation of the author based on UK best practice and other contract books. From that table, it is clear that, the contractor was claiming in order to alleviate the effects of the high liquidated damages that he suffered because of his delaying. That idea will be clear if the comparison has been made between the contractor s estimation from one side and both of the engineer s and the author s estimations form the other side. The contractor has asked for an extension of the completion date by 456 days, however both the engineer and the author have accepted to give him just 136 days and 122 days respectively. In order to make this idea clear, the author makes a comparison between each category shown in table 5-8 based on the three estimations i.e. the engineer s, the contractor s and the author s estimations as shown in figure author's estimation Engineer's estimations Contractor's estimations F E D B A 0 Claim No. Figure 5-1: Comparison between the contractor s, the author s and the engineer estimations for extensions of the completion date claims Mustafa Abedmousa August

101 Mustafa Abedmousa August

102 Mustafa Abedmousa August

103 2. Claims concerning extension of time for completion and money According to Hughes and Barber (1997), considering of time and cost in any project should not be carried out in isolated compartments. They could be either interindependent variable or dependent on the same facts. Under this section, claims for monetary compensation of time related costs which are in connection with an extension of time for completion will be discussed. The claims are arising out of delay in payment of one interim payment and delay as result of ordered extra work. These two claims are discussed under the section of claims concerning money through the analysis of ninth and fifth claims respectively. Therefore in this section the author is studying whether the contractor is entitled to an extension of time for completion or not. o Summary of the claims Under the fifth claim Indemnities against increasing the height of the hospital floors by 50 cm which was discussed under the variation clauses of PSCC, the contractor claims for extra time for completion because of the ordered additional works done by him. According to the contractor s letter the extra works had increased the work required to be carried out for the hospital building which consists of three floors. He had applied for 60 days as extension of time, but the engineer accepted to give him only 21 days. The other claim is the ninth claim discussed under the claims concerning money section. The contractor submitted the interim payment 17 giving the amounts which he is claiming together with supporting documents. The engineer certified the interim payment but the employer did not make that certified payment within 56 days from the date of receiving the contractor s statement by the engineer. Therefore the cash flow of the contractor had been affected. As a result of that a delay had happened in performing the final parts of works included in the contract as the contractor had not the financial ability Mustafa Abedmousa August

104 to perform that work. The contractor s estimation for the delay is 55; however the estimation of the engineer is only 14 days. o Claims discussion PSCC (2006) affirms if a variation of work is ordered and there is not any agreed adjustment to the time of completion under the sub-clause 13.3 Variation procedure. Then the contractor is entitled to extension of the time to carry out the work if and to the extent that completion for the purposes of sub-clause 10.1 Taking over of the works and sections is delayed because of that additional works. Both Tricky (1990) and Hughes and Barber (1997) argue that the contractor could be entitled to extension of period for completion when extra work is ordered. Since the ordered extra work had affected most of the critical activities on the critical path. Also, based on the previously mentioned point of views of the PSCC and other writers the author agrees with the idea to give the contractor extra time for the fifth claim. In addition he accepts the engineer s estimation for the delay as a ground for extension of time since the contractor did not submit any detail about how he arrived to that estimation. For the delayed payment, the general conditions of PSCC have only agreed additional payment entitlement for the contractor under sub-clause However Hughes and Barber (1997) argue the contractor will be entitled to both extension of time and monetary compensation only if the employer is responsible to the financial risk. The financial risk is not included neither in the employer s risks under subclause 17.3 of the PSCC nor his risks under the conditions of the contract. Thus the contractor can not claim for any extension of time for such delay. Mustafa Abedmousa August

105 This means the author does not accept to give the contractor any extension of time for completion. o Results of the analysis Under this section the author gives his estimations for the required extensions of time for the completion date for claims concerning both money and time i.e. the fifth and the ninth claims. Based on the previous discussion the author accepts to give extra time for only the fifth claims as shown in table 5-9. The author s evaluations whether the contractor is entitled to extra money or not was discussed in the previous section. Claim Description for the claim no. 5 Indemnities against the increase of floor height by 50 cm 9 Indemnity for delay in payment of variations and extra quantities Contractor s estimations Engineer s estimations Author s evaluations 60 days 21 days 21 days 55 days 14 days 0 days Table 5-9: the author s, contractor s and engineer s estimations of the extensions for the completion date of claims concerning both money and time Employer s claim o Summary of the liquidated damages claim According to the engineer Faruqe Kittna who is the employer representative, the Kuwaiti Surgery Specialized Hospital project had been delayed a year after the expected date for completion (see the interview no.4 in Appendix B). As a consequence the employer claimed for a sum calculated at the rate stated Mustafa Abedmousa August

106 in the contract as liquidated damages for the period which the works had remained incomplete. The amount of the liquidated damages was $2000 US for each day or part thereof not substantially complete, but should not exceed 10% of the contract sum (PECDAR, 2004). o Claim discussion The certificates of completion and ascertain and grant the extension of time which merge effectively to determine the delay to be compensated may be issued by the engineer. However the sum of the money which shall be paid by the contractor to the employer as liquidated damages for the delayed period is not usually certified by the engineer (Hughes and Barber, 1997). In order for the liquidated damages to be payable under the contract there must be a specified completion date which validly fixed by the contract (Hosie, 1995, Smith, 1990 and Hughes and Barber, 1997). Smith (1990) points out liquidated damages are not only recoverable without the employer having to prove loss but also it is irrelevant if there is no loss in the event. The Sub-clause 8.7 of PSCC (2006) affirms the contractor shall pay delay damages to the employer if the contractor fails to complete the work by the due date validly fixed by the contract. Additionally, the daily sum and maximum total amount of the damages must be stated in the appendix to tender. Sub-clause 1.13 of the Kuwait Surgery Specialized Hospital tendering requirements and conditions of contract sticks with the sub-clause 8.7 of PSCC. Therefore the author argues, since the contractor failed to complete the works by the due date, then the contractor shall pay the sum calculated at the rate stated in the contract as liquidated damages. Mustafa Abedmousa August

107 5.6. Conclusions In this chapter, the claims for money, time or both were analyzed and discussed in detail. Moreover, the author tries to give his opinion based on the UK best practice in the construction industry. Under this section, the author used one method of analysis which is the best practice of the UK. Therefore his argument was really based on his understanding for the solutions for many claims happened in the British construction industry and sometimes he used other contracts book like PSCC. The most important point is that a widely differing conclusion could come up if other claim analysts will use different methods of analysis. However, the analysis is very helpful in identifying potential problems in the construction industry despite the methods that will be used in analysis. Since the author only has analyzed one case study for the reasons mentioned in the limitation of this study, he can not make his final decision based on that. Therefore, he will use another method which is a questionnaire survey in order to collect the required and sufficient information that helps him to make his conclusions. In the next chapter the author will analyze the received questionnaires to see for how long there is an agreement in the results obtained from the two methods. Mustafa Abedmousa August

108 Chapter Six Questionnaire Survey on Construction Claims in Palestine: Analysis and Discussion 6.1. Introduction A case study for one of the projects performed in Palestine was analyzed and discussed in the last chapter. As mentioned before, one of the limitations of this research is that only one case study of construction projects carried out in Palestine was studied. In order to prove or disprove the results of the analysis for the case study project, the author used other two methods for collecting the required data. These two methods are the questionnaire survey and the phone interviews which were used to discuss some points and ideas mentioned in the questionnaires and the case study. A questionnaire survey of six governmental and nongovernmental institutions and construction firms in Palestine was undertaken. The purpose of the questionnaire survey is to identify the causes of the claims, essential management issues and methods for improvement as identified and stated by these experts Questionnaire Design As previously mentioned, the questionnaire survey was carried out to gather information from governmental institutions contributing directly or indirectly in the construction field and from private construction firms. The questionnaire form was prepared by the author with the assistance of his supervisor Mr. David Hoare based on the literature review of chapter 2, 3 and 4 and the results of the case study given in chapter 5 of this research. The survey was structured in order to obtain the following information: The main causes for the delays in the Palestinian construction project and their relation to construction claims and disputes. Mustafa Abedmousa August

109 The main causes of the construction claims between the parties of the contract in Palestine. Whether or not the PSCC is expected to improve the situations of that field. Methods and suggestions to improve the construction industry situation and to alleviate the effects of delays and claims. A sample of the blank questionnaire survey used in this study is shown in Appendix F-1. The questionnaire which contains a brief introduction about its aim consists of three parts. The interviewee will write his personal detail and experience in the first part. Questions about the status of the Palestinian construction industry are the second part. The third part asks the interviewees about their opinions for improvement by offering and clarifying some procedures used in the NEC3 and asking them to write their views for improvement. The answers of the questionnaires are shown in Appendix F-3. Excel is used to analyze the data obtained from answered questionnaires Data Collection The required data from the construction experts was collected in two stages. The first stage was the questionnaire survey which was distributed via internet. Phone interview with some of these experts was the second stage. The aim of these interviews was to ask the interviewees specific questions based on their answers in the questionnaire. Ten questionnaire forms were distributed among governmental institutions contributing directly or indirectly in the construction field and the other ten were distributed among private construction firms. These interviewees are involved in many housing, school, health centers, road and water and sewerage projects in the West Bank. Seven replies were gathered which is representing a response rate of 35% as shown in table 6-1. The selection criteria of the experts in order to complete the questionnaires included considerable involvement in construction claims and disputes and at least eight years Mustafa Abedmousa August

110 experience in the construction industry. All of the respondents have these criteria except one engineer who has only 3 years of experience. Table G-1 in Appendix F-2 shows the level of experiences of the respondents, their qualifications and the name of the institutions or the firms where they are working. Questionnaires sent Among governmental Among private Total institutions firms No. of Participants No. of Participants Responded Response Rate 30% 40% 35% Table 6-1: The Distribution of the questionnaires and the response rate 6.4. Results and Analysis As formerly stated, excel was used in order to analyze the data obtained from the completed questionnaires. The results of the analysis are also shown in tables and pie charts. The questionnaire consists of two different sections which are the status of the construction industry in Palestine and the improvement methods. The analysis and presentation of the information obtained from the questionnaires are shown in the following two sections Analysis of the data under the status of construction management in Palestine section 1. Causes of Delays in construction projects in Palestine Based on the data obtained from the answers of the interviewees for the first question in the questionnaire, all the interviewees except one of them state that the construction projects in Palestine is rarely finished on time or within the budget. According to that expert, only around 30% of the implemented projects in his Mustafa Abedmousa August

111 institution are completed neither on time nor within the budget limits. Moreover, he affirms that the exceeding of the estimated budget on many projects which generally stays within 15% could be due to either an increase on quantities or unforeseen obstacles that had to be dealt with (see completed questionnaire no. 5 in Appendix F- 3). In the completed questionnaires, 28 causes of delays in the construction projects were mentioned. The author divided these causes into 7 categories and then he calculated the percentage of each category based on its frequency divided by the summations of the frequencies of all causes. The answer was then multiplied by 100%. Figure 6-1 shows the percentage of each type. Currency Unstable political situations Mismanagement by contractor and his staff 7% 18% 14% Variations in the w orks Breakdow n of the instruments and machines Unskilled labours and lack of experts 7% 7% 21% 26% Availability of the construction materials Figure 6-1: Causes of the delays in the construction project in Palestine The figure shows that, the most significant reason that affects finishing the construction projects in Palestine on time and within budget limits is the unstable political situations estimated to be 26% and then the lack or mismanagement of the contractor and his staff which includes offering unrealistic price of the projects at Mustafa Abedmousa August

112 tendering stage at a percentage of 21%. The third important reason which estimated to be 18% is the availability of the construction materials in the local market. According to most of the interviewees this reason is highly related to the political situations in Palestine. Additionally, the scarcity of the construction materials is mostly because of the Israeli siege and closures of the borders. Most of the contracting projects are not priced using the local currency which is highly changeable relating to the economical and the political conditions. This situation is the main reason for the loss of the contractor and then affects the required time for completion (See questionnaire no. 6 in Appendix F-3). This reason is estimated to be 14%. The other three reasons which affect performing the construction projects within the budget and time limits are estimated to be 7% for each one as shown in the figure above. 2. Causes of the claims In the questionnaire, the author asked the interviewees about the main causes of construction claims in Palestine. The data received indicates that there are eight possible causes of claims. The percentage of each cause was calculated based on its frequency divided by the summations of the frequencies of all causes. The answer was then multiplied by 100%. The results of this analysis shown in figure 6-2 indicate that Israeli siege and closure is the most frequent cause of claims with a percentage of 25% while work delay and the fluctuation in the price of the construction materials were ranked second with a percentage of 19% for each. The third cause of claims is the late in specifications and drawings estimated to be 13%. This cause is studied under designrelated delay (Fereig and Kartam, 2008). A delayed payment cause which is always financial and economic status of the employer or the project owner is estimated to be 6% of the total. As well as quality of work, variations order and contract ambiguity have the same rank as the delayed payment. Mustafa Abedmousa August

113 Work delay 6% 6% 19% Payment delay Israeli siege Quality of work Late specifications Changes in materials costs Contract ambiguity 19% 6% Variation order 13% 25% 6% Figure 6-2: Claim causes and their percentages 3. The contract books used The problem of finding different standards and contracts book were shown from the received data of the question four in the questionnaire. Three of the interviewees mentioned that they use the PSCC and FIDIC Two of them said that there is no fixed standard contract book used by their companies or organizations. In addition they argued that the contract book is always decided by the donor countries. Only r two out of seven interviewees state that, they only used the PSCC. All of the interviewees stated that, the contract book used by them helps each party to make claims against the others. For the part of the interviewees have used PSCC, they affirm that although this book contains enough information which helps each party to protect themselves, it contains a lot of ambiguity clauses. Such that clauses lead to claims and disputes since both parties interpret these clauses of a contract to where both sides think they are right. Moreover, the problem of the complex language of the PSCC has been stated by some of them. For example Mr. Musa Jwayyed stated that, the main obstacle that he has faced is the misinterpretation of the words or phrases in a contract (see completed questionnaire no. 5 in Appendix F-3). Furthermore, Mustafa Abedmousa August

114 containing some optional clauses, it could lead to claims and disputes, especially the one relating to the fluctuation in the prices of construction materials (See questionnaire no. 7 in Appendix F-3). 4. Reports about the status of construction industry in Palestine As previously stated in chapter one, very little literatures have been written about the situations of the Palestinian construction industry. This argument which mentioned in chapter one was supported by the received data from the respondents about the availability of a report concerning the status of the Palestinian construction industry. All of the respondents said that, they had never read or even heard about such report. Moreover, they referred the scarcity of such reports to many reasons which are: The scarcity of the data or resources required to conduct such report. The universities in Palestine have no concern with such issue. The management sector in Palestine is not reaching the level of such report The decision makers in this field are not interested in such report. 5. Planning programme Sub-clause 8.3 under the PSCC affirms that, the detailed time programme should be submitted by the contractor to the engineer within 28 days after receiving the notice of commence date. If the programme becomes inconsistent with the actual progress or with the obligations of the contractor, then a revised programme should be submitted. In order to know how easy to up date the programme, the author the interviewees asked about the planning software that have been used by them. Also, he asked them about how they have used it to perform the timing programme. The data received affirmed that the respondents usually use the MS-project management software, and sometimes they use primavera. All of them affirmed that any software is not a management tool but they use suchsoftware in order to draw the chart plan for all the Mustafa Abedmousa August

115 activities. All of the respondents except the interviewee no.1 said that, they never updated the time programme. The first respondent Mr. Farouq Kittanti stated that, his organization has carried out the update manually. 6. Risk management The construction industry in comparison with other industries is full of risks and includes hundreds or even thousands of interacting activities. Each activity may involve cost, time, quality and sequencing problems (Flanagan and Norman, 1993). According to Smith et al. (2007), there are many reasons for the risks in construction industry like bespoke nature of project, incomplete design and investigation at tender stage and the need to complete works within short time scales. Therefore a proper risk management is understood to be an important factor to achieve the success of projects through providing a method for improving value for money in construction. Although the importance of the risk management in the process of alleviating the effects of the claims and disputes in construction industry, it was found that, only one organization is in the process of conducting a risk management study for a proposed project in the Center Business District area (CBD) (see questionnaire no.5). Other respondents affirmed that, risk management field should be supported and improved in Palestine since it helps in avoiding many problems in projects. This leads to alleviate the number of the claims in the Palestinian construction industry Analysis of the data under improving the construction industry in Palestine section 1. Ways to deal with claims and disputes The second part of the questionnaire survey is about how the situation of the construction industry in Palestine could be improved. As previously stated, the claims and disputes have a negative impact on the performance of the parties and therefore, Mustafa Abedmousa August

116 the projects. Thus, the alleviating of the effects of the claims and the disputes is expected to improve the status of the Palestinian construction industry. Under the aim of this study, the author asked the interviewees about the best method to deal with construction claims. The data received showed many suggestions for improvement such as: Educating and developing the contractors skill through training programmes. Evaluating the contractors using screening process (technical evaluation). Strengthening the bylaws and regulations. Having approved one contracts standard book. Alleviating the liquidated damages. Having a user guide with full details for several cases of claims solutions in order to be a base for judgments. Having a checklist stated each party risks. 2. The general features of the PSCC In order to describe the general features of the PSCC, two questions were asked to the interviewees. The first one asked them if they have personally used the PSCC or not. The second question was about the weakest and the strongest points of that book. Only two out of seven respondents whom count a percentage of 29% have used it. The two respondents who have used the PSCC affirmed that they have not an clear vision about the general feature of the PSCC since it has been used since February But one of them said that, he faced problems in understanding some clauses i.e. the written language which is Arabic is a complex language (for more information see questionnaire no. 2 and 6 in Appendix F-3). Mustafa Abedmousa August

117 3. Improving the PSCC by adding some the ECC principles The questionnaire survey tries to see how much the principles of the NEC could be transferred to Palestine by asking the interviewees about their opinions in three key principles which provide a stimulus to good project management. These three principles are (Hoare, 2007): The early warning meetings. Statements of events for which the employer is liable. A regularly updated and agreed programme. The data received indicated that, all of the respondents agree to have these principles in the contract book as shown in the table 6-2 which shows the results when asked about the key principles. Furthermore some of the institutions are already using two of these principles which are mainly the regularly updated and agreed programme and the early warning meeting (for more information see completed questionnaire no. 1). The key principle Early warning meeting Updating programme Number of respondents who say yes and never use it Number of respondents who say yes and have used it Number of respondents who say no and never use it Number of respondents who say no and have use it Not sure Risk checklist Table 6-2: Results of the acceptability of some of the NEC features From the table, most of the respondents stated that holding the early warning meeting which leads to shrink the construction risk and mitigate the problems is a necessary Mustafa Abedmousa August

118 principle to reduce the claims in Palestine. Moreover most of them affirmed that, the contract should clearly state when the warning signal should be sounded. As shown in table 6-2 only one respondent disagreed with such principle since his organization has already carried out this meeting but no one has followed up. The author argues that this situation has happened since that meeting was not a part of the contract, i.e. no mechanism to arrange that meeting. The second principle which provides motivation to good project management is the regularly updating programme. All of the respondents said that, the contract book should ask the contractor to update his programme regularly. Some respondents stated that, the regularly updated programme is one of the contractor s interests. Moreover, by doing that regularly, it is expected that number of the claims will be reduced since the contractor can know which activities should be carried out as soon as possible and which can be delayed without affecting the date of completion. Additionally, the contractor can accelerate some activities which are expected to delay the projects, therefore reduce the liquidated damages (see complete questionnaires no. 3&7). The compensation events, which are clear statement of events for which employer is liable, are the third principle for improvement. 71% of the respondents think that the contract book should have the compensation events or risk checklist. Since according to Mr. Musa Jwayyed (questionnaire no.5) most of claims always arise because of the interpretation of the clauses of the contract to where both sides think they are right. Therefore having a checklist or compensation events will state clearly who is responsible for what (see questionnaires 3 and 7) Underlying Management issues The analysis of the questionnaire survey has identified many basic management issues like: The lack of the experience Mustafa Abedmousa August

119 Poor communication between parties Problems in the classification of the contractor. More than one standard book of contract. The high liquidated damages for the delays. These underlying management issues are discussed in chapter seven Conclusions The questionnaire survey used for the aim of this dissertation was analyzed in this chapter. The causes of delays and claims were identified and discussed. Then the survey tries to seek for an improvement way for the construction industry in Palestine by asking the interviewees about their opinions to deal with claims and disputes. Finally it offers some key principles of the NEC3 which provides a stimulus to good project management and asks the interviewees whether the PSCC or any contract book should have clauses state that clearly or not. Most of the respondents affirmed that any contract book should include these three principles. Moreover, the data received identified many underlying management issues. These issues and the results of the analysis will be studied in the next chapter. Mustafa Abedmousa August

120 Chapter Seven Research findings: Summary, Discussion, Conclusions and Recommendations 7.1. Introduction In chapter one, specifically at section 1.5, the basic hypotheses for the research to address were outlined. These hypotheses are repeated below for the convenience of the reader: Hypothesis 1: The most significant cause of contractor s claims on contracts is the increasing number of the contractors in the West Bank which forced 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. The validity of these hypotheses will be addressed in this chapter which pulls the findings of the individual chapters of this study together. Furthermore, the conclusions and recommendations for future study in order to improve the situations of the construction industry in Palestine are presented in this chapter. These recommendations are suggested based on the findings of the dissertation. Mustafa Abedmousa August

121 7.2. Executive summary of the literature review In section 1.4 research objectives there were four driving questions. Answering these questions is very important since the suitable answers help in describing the current situation of the construction industry in Palestine, identifying the causes of claims and disputes in the Palestinian construction industry and discovering the underlying management issues which might be used to alleviate the impact of the claims. These driving questions were: 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? During the literature review from chapter two to chapter four, initial answers for the first three of these questions were established. The second chapter of this study was addressing the following points: The importance of the construction industry in Palestine and its strategic role in the economic sector of Palestine. This was addressed by utilizing three indicators which were its contribution in the GDP since 1967 until now, labour force volume that employed in that sector and fixed domestic capital formation. Identification of the parties related to the construction industry. Using many different conditions of contracts and specifications which could be described as injustice and full of clauses that leads to claims and disputes was a direct result of absence of one standard book. The most significant problems in the construction industry which was addressed under section 2.5 Limitations and Challenges. From that section, the most important factors that have affected the nature of development in this sector were outlined. The Israeli siege was the most important challenge that has affected the Mustafa Abedmousa August

122 development of this sector, and has caused many direct and indirect losses for many construction firms in Palestine. In the third chapter of this study, the PSCC s features were outlined. Also, some subclauses of that book were discussed in detail. The most important points of that chapter were: Many ministries which are responsible for different construction projects in the public sector have recommended having only one standard construction contract book in order to alleviate the effects of the claims and disputes. Moreover, they argue that the PSCC could enhance the construction industry. Although the PSCC forms the basis for the contractual relationship between the main three parties of any contract being the owner of the project, the main contractor and the consultant engineer, its features which stated under section could lead to many claims and disputes. These claims and disputes could have happened as direct results of the ambiguity of many sub-clauses in the PSCC, the complexity of the written language and difficultly of understanding the sentences. The discussion of certain sub-clauses gave illustration for the ambiguity of some sub-clauses and the legal language of the PSCC book. Moreover it gave an example about its role in raising claims and disputes by making some sub-clauses as optional provisions. The causes of the claims and disputes in construction industry were discussed and studied in chapter four of the dissertation. In that chapter, the definition of the claim and its classification based on the type and the subject were stated. Also, some of the causes of the valid claim are mentioned. These claims were chosen for discussion based on the literature review in the second and the third chapter of this study as well as the causes of claims and disputes that obtained form results of the analysis of both the case study and the questionnaire survey. Mustafa Abedmousa August

123 In order to check the validity of the hypotheses for the research case study for one construction project and the questionnaire survey have been used (see chapters 5 and 6) Executive Summary of the Fifth and Sixth Chapters and the Research Finding In order to check the validity of the data obtained from the individual chapters of the dissertation and to check the validity of its hypotheses, firstly claims of one construction project which was carried out in the West Bank was analyzed and discussed (see chapter five). Secondly questionnaires were distributed to gather information from governmental institutions contributing directly or indirectly in the construction field and from private construction firms. The received data was analyzed and discussed in detail. The analysis has identified the causes of the claims in Palestine. Also, it gave an answer for the fourth driving question. Both the case study and the questionnaire survey investigated in chapter five and six respectively enabled the causes of the claims in the Palestinian construction industry to be identified. Based on the analysis of the case study, the most important reasons contributing to the delaying the projects and/ or increasing its costs are: The fluctuation in the price of construction materials (56.9%). The variations orders which are estimated to cause 21.48% of the money claims. Moreover it is accounted for 46 days out of 122 days according to the author s evaluations. The delay in receiving the necessary instruction in the due time which is estimated to be 61 days out of 122 days according to the author s evaluations. The work delay which is the duration between the expected date to finish the project and the exact date after taking out the 122 days author s estimation of the time which is the contractor is entitled to. According to the author s estimations this is estimated to be 246 days out of 368 days the total duration of delay in the project. Mustafa Abedmousa August

124 The least important causes of the claims were the special circumstances outside both parties like the Israeli closures of the checkpoints and the borders. Unlike the data received from the analysis of the case study, the data received from analysis of the questionnaire survey indicated that the most important causes of claims and disputes is the Israeli siege (25%). The fluctuation in the price of construction materials and work delay were ranked second with a percentage of 19% for each. Table 7-1 shows the ranking of some the reasons of construction claims and disputes in Palestine. The ranking is from 1 to 5, where 1 means a highly important cause and 5 means the least important cause. Cause of the Claim Ranking based on the questionnaire Ranking based on the case study Work delay 2 1 Payment delay 5 3 Israeli siege and closure 1 5 Quality of work 5 5 Delay in receiving the specifications 4 2 Fluctuation in the price of construction 2 1 materials Variations order 4 2 Table 7-1: The Ranking of the most important causes of the claims based on the data received from the analysis of both the case study and questionnaires The delay in the construction project is one of the most common causes of the construction claims as shown in table 7-1. Data obtained from chapters 5 and 6 enable examples to be given of the cause of the types of the delay quoted in chapter four as: Excusable non- compensable Under this type the construction company gets time but no money. The Israeli siege and closure and the effects of bad weather delays are considered to be classified Mustafa Abedmousa August

125 under this type since these causes are outside the control of both parties i.e. the contractor and the employer. Non- excusable delay Work delay which could be defined as management or administrative related delay is considered as a non-excusable delay. Therefore the contractor gets neither time nor money since the contractor is responsible of such delay because of his poor management or administration. Furthermore, according to Kittani (2008b), the most important causes of a work delay claim is the financial situation of the contractor. Also, because of the bad financial situation the bank does not agree to give the contractors any facilities. Excusable compensable Financial or economic-related delay, like delayed payments, the variations order and late of instructions or specifications delays are three examples of such delays that can be considered as excusable compensable. Under this type of delays the contractor is entitled for both money and time. Types of claims in Palestine The data received from chapters five and six indicated that the main types of claims in construction industry in Palestine can be classified into five main categories. These main types are stated from the most to the least important as follows: Delay claims Changes and extra work claims Fluctuation in the price of construction materials claim Different site conditions claims Contract ambiguity claims Underlying management issues The analyses of the questionnaire survey and the phone interview have identified many basic management issues which identify the project management issues. These basic Mustafa Abedmousa August

126 management issues could be addressed or enhanced or avoided in the future in order to avoid arising construction claims or at least alleviating their effects. The underlying management issues mentioned in chapter six are discussed here because of their relevance to the hypotheses. These issues are as follows: The lack of experience When the contractor does not have the required management and planning skills then the problem of the mismanagement will occur. Such mismanagement will cause work delay claims. Poor communication between parties The main obstacle which could face the main parties of the projects who are using the PSCC is the misinterpretation of words or phrases in the contract. This obstacle could lead to ambiguity claims since both parties interpret the clauses of the contract to where both sides think they are right. Therefore using simpler and more coherent contracts could improve the situation. Problems in the classification of the contractor As previously mentioned in chapter five, the contractor who performed the studied and analyzed construction project in that chapter was a first class contractor according to the classification of PCU. However, Kittani (2008b) stats that the most important causes of the work delay claims in that project were due to the contractor s bad financial situations. More than one standard book of contract As previously stated in the third chapter, Palestinian construction industry has more than one contract book. Moreover, the analysis of the questionnaire shows that most of the respondents have used more than one contract book. Therefore, the owner will use the contract conditions that give him more advantages and causes losses for the other parties. Moreover, some of these conditions could be unfairness for one party. These books could lead the loser party to claim in order to minimize the affects of Mustafa Abedmousa August

127 such conditions in his profit from carrying out such project. Hence, having one standard book could help in reducing the number of claims since this book will draw the contractual basis of any claim. The high liquidated damages for the delays Throughout the analysis of chapter five, it was clear that the contractor tries to submit as much as he can from the claims without any contractual base. As previously mentioned, the liquidated damages were $2000 per day and its limit was 10% of the contract price. Since the delay was around one year then the employer is entitled to the limit of the liquidated damages which is too high. Therefore, the contractor has arisen as many of the claims as possible in order to reduce his losses. Hence, alleviating the value of the liquidated damages could reduce the number of arising claims. Other points related to chapter five o The claims report for compensation and the forms submitted by the contractor as requests for extension of the contract period suffer from lack of sound, comprehensive and persuasive submission. Basically, the claim submitted by the contractor for extra time and/or money seem like a wish list since the contractor did not mentioned the specific contract clauses which are relied upon. Also, the claim report was not written in the formal way of a claim submission which should contain an introduction, summary of facts, basis of the claims, details of the claims, evaluation of the claims, statement of it and the appendix. o Analyzing of the money claims which is shown tables 5-5 and 5-6 shows that, the contractor tries to raise as many of the claims as possible without using any contractual base. Moreover figure 5-1 gives illustration of that, since by comparing the contractor s estimation and author s one it becomes clear that most of the claims are wish list claims. o One of the major causes of claims is delays because of the variations order. Mustafa Abedmousa August

128 Other points mentioned in chapter six o The unstable political situations and the mismanagement of the contractors are the main causes of delays in the construction industry. o The PSCC as other contract books in Palestine help each party to make claims against the other because of its legal and formal written language which leads to ambiguity. o The PSCC could be enhanced by having three key principles of NEC3. These principles which provide a stimulus to good project management are: The early warning meeting for identifying future risks and avoiding or at least minimizing their impacts The statements of events for which the employer is liable A regularly updated and agreed programme 7.4. Conclusions: The Validity of the research hypotheses Validity of the Data The validity of the basic study data which is providing evidence about the construction claims and disputes in Palestine has been obtained from recorded findings such as books, journals, etc. Such this data could be given high accurate credibility. However, the data obtained from the questionnaire survey and the phone interview could be due to vested interests by the person supplying the data. Therefore, it is very important to view such data with some cautions. In order to do that, the author has taken care throughout considering the origins of all data before use by triangulating each single data whenever possible before drawing any conclusion. In surveying, when the triangulation method is used the coordination of a point can be decided by viewing it from other two points. If the results of the two points agree then the surveyor has confidence in his results. The same idea or analogy has been used in this Mustafa Abedmousa August

129 research by identifying the construction claims and disputes using three different sources which are the case study, interviews and questionnaire survey. Whenever the causes of the claims and the basis of management issues which are obtained from these three different sources are discovered to be in agreement, then this will give a confidence for the researcher and validity for the research Research findings The summaries of the literature review chapters, the summary of the causes and types of the claims and the underlying management issues offer evidence to support the validity of the first two hypotheses however the third one is complex one and any simple conclusion could lead to misleading. Hypothesis 1: The literature review (chapter 2) identified the major parties related to the construction industry in Palestine. As well the limitations and the challenges of that industry were recognized. The analysis of the case study and the data obtained from the phone interview has outlined many important points like the high number of the construction claims. Moreover, chapter six identifies many underlying management issues one of these management issues is related to the lack of experience which leads to mismanagement being one of the causes of the delays and increasing the costs of the construction projects. Therefore, all of the data supports the validity of the Hypothesis 1. Hypothesis 2: Chapter 2 identified the challenges and the limitations facing the improvement of the construction industry. The Israeli closure and the scarcity of the planning and managerial skills were discussed under that section. Moreover their effects were also outlined in the same chapter. Chapter four outlined the major causes of claims and disputes in the construction industry. Chapters five and six have identified many management issues and causes of the claims. Hence, all of the data supports and prove the validity of the second Hypothesis. Mustafa Abedmousa August

130 Hypothesis 3: Chapters 2 and 3 have addressed the problems of having more than one contract book. A recommendation for improvement by enforcing the PSCC has been mentioned in the summary of the second chapter. The third chapter has studied the importance of having one contract book and the importance of the PSCC has been stated. Moreover, the features of that book and many sub-clauses have been discussed in detail. The second chapter and the first two sections of the third chapter supported the validity of the third hypothesis. However the studying of the general features and the discussion of some sub-clauses of it have shown that this book needs some improvement since continuing using of this book without any enhancement will lead to many claims and disputes. This means that, enforcing the PSCC as the only contract book could enhance the current situations of the construction industry but not to the required degree. Moreover, chapter four has shown some of the problems of this contract book. The data obtained from the analysis of the questionnaire and the phone interview show that the PSCC with these features will cause a lot of claims and disputes. Many methods in the purpose of its improvement have been suggested in the sixth chapter. Therefore, the data received indicated that having one contract book which is enforced by the government will lead to little enhancement. Hence, its procedure to deal with construction contract and some of its features need to be improved Recommendations for future studies The author wishes to make recommendations for further research on the Palestinian construction industry in order to avoid or minimize the adverse effects under which the projects of construction at Palestine are operated. These recommendations include suggestions for future studies on a topic related to this study due to the time and traveling constraints. Based on the analysis and the discussion of the data of this dissertation the author recommends the following areas for research: The Palestinian construction industry is full of risks and the studies on the risk management are rarely carried out. Therefore the author recommends studying the effects of applying the risk management on the construction industry in Palestine. Mustafa Abedmousa August

131 According to the analysis of chapter 5 and 6, variations order is one of the main causes of the claims and disputes in the construction industry in Palestine. In order to improve the situation and to decrease the number of variation claims, it is recommended to study the effects of using any organization of roles instead of the separate design and construction which have been used for great period of time. The analysis of the case study and the questionnaire and the interviews have identified many underlying issues, one of these are the lack of experience for the Palestinian contractors. Moreover the case study and the interviews mentioned that although the contractor has a first class according to the PCU scale of classification, the contractor suffered from many financial and managerial problems. Therefore, it is recommended to study the method of classification in Palestine and the ways to improve it. The data obtained from chapter six indicated that, the PSCC with these features could cause a lot of claims and disputes in the construction industry. Moreover some methods of improvement using some of the key principles of the NEC3 have been suggested. Such that acceptance encourages the author to recommend studying the applicability of the new engineering contract (NEC3) in Palestine. Mustafa Abedmousa August

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138 Trickey, G. (1990) The presentation and settlement of contractors claims. London: Chapman and Hall. Wang, H. and Yao, Z. (2006) The Linguistic Features of Legal English as Reflected in FIDIC Contract Conditions. International Forum of Teaching and Studies 2(1): Zaneldin, E., K. (2006) Construction claims in the United Arab Emirates: types, causes and frequency. International Journal of Project Management 24(5): Mustafa Abedmousa August

139 APPENDICES Mustafa Abedmousa August