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Construction Contractor’s Incentives

2 replies [Last post]
Sat, 2009-07-18 07:47
Faizal Shafik
User offline. Last seen 1 year 35 weeks ago. Offline
Joined: 18 Jul 2009
Posts: 3
Groups: Petro-Chem / Oil & Gas
Hi,

I am currently working as Planning Incharge of a 36 month duration Chemical Plant currentlt in 28 th month of construction. Actual progress is 65% as compared to a forecast plan of 67% and a baseline plan of 82% . It is been foreseen that the Project is heading towards a delay of 2-3 months. Management wants to announce an incentive for the Construction Contractor.

I want to develop a basis for the incentive. Want to know what financial basis are usually considered in such a case?
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Replies

Sat, 2009-07-18 11:31
#1
Samer Zawaydeh
User offline. Last seen 5 years 38 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Faizal,

What Mike has recommended is excellent. You are luck to receive this advice in detail.

In addition, I would recommend that you evaluate the key areas as follows:

1. Experience of the Project Manager in completing these kinds of projects.
2. Experience of the Project team & subcontractors in these kinds of projects.
3. Cash flow of the Contractor. You need to make sure that the Contractor can commit to all the balance payments for material and resources.
4. Arrival of Balance Material to site.

You need to understand the full cycle of construction at site and all the players before you take action with the incentive plan.

With kind regards,

Samer
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Sat, 2009-07-18 08:22
#2
Mike Testro
User offline. Last seen 36 weeks 2 hours ago. Offline
Joined: 14 Dec 2005
Posts: 4418
Groups: Building Information Modelling, Content Moderators, GPCCAR Editors
Hi Faizal

I assume you are on the Client’s staff not the Contractor.

What you are contemplating is an acceleration payment on the basis that it was not the contractor that caused the delay.

Firstly you need to establish what work remains to be completed and what is the critical path to completion.

The simplest way to accelerate the work is to increase the work hours. This is done using the work pattern on the calendar and should be applied to the critical tasks.

The next step is to deploy more labour but this must be organised carefully - it is counter productive to just increase the size of an existing work gang because they will just get in each others way.

Look for sections of the work where workfronts can be opened up early and new gangs deployed.

This will change the critical path and new work patterns will have to be established.

All of these measures can be costed and then negotiated with the contractor as a cost for a shorter construction period.

This will have to be a separate agreement as very few forms of contract have an acceleration clause.

In my experience these acceleration agreements always cause disputes because something will crop up that stops the contractor finishing but he has still spent the money.

Please keep in touch

Best regards

Mike Testro
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