Posted: May 11th, 2015

Technical report on legal framework and risk identification complex projects in AEC industry

   LEGAL RISK MANAGEMENT

     SRQ 763- ASSIGNMENT 1

                 (PART A)

 

Technical report on legal framework and risk identification complex projects in AEC industry

 

UNIT: SRQ- 736 Legal Risk Management

 

 

 

PREFACE

This is a specialized report cover the legal framework and risk identification and analysis on complex projects in Architectural, Engineering and Construction Industry. The project being considered in this report is a commercial building to be built at 58 Main Road, Gellibrand, bounded by Main Road & adjacent residential buildings.

Firstly, the report is presented with the context and extent of the project. Likewise, the primary objectives of the undertaking amid the development stage are highlighted. Also statutory laws identified relevant to this project.

Secondly, these Acts applicable to construction phase of Gellibrand DEPI Depot project mentioned are further classified into Contract, employment, industrial relations and other acts. And Legislation and policies relevant to the construction phase of the project as provided on ‘Cloud Deakin are also discussed.

Finally, the inherent risks are identified which are related to the construction phase of the project then grouped and ranked based on their estimated severity. Furthermore, the risk management approach for the delivery of project is proposed.

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

1. Introduction                                                               Page no.
   • Context                                                                   4
   • Scope 4
   • Objectives4-5
   • Statutory laws                             5-6

 

2. Legal Framework and Policies
   • Contract Acts7
   • Employment Acts8
   • Industry Relation Act8
   • Others Act9
   • Legislation and Policies Identification 9-11

 

3. Risk related to the construction
   • Introduction 12
   • Definition of risk12
   • Risks Involved                               12-13
   • Categorization of risks 13-17

 

4. Ranking risks18-20
5. Legal Framework                                                           21-23
6. References                                                                       24

 

1. INTRODUCTION

 

• Context

The point of the proposed advancement is to supplant the current building stock, which are toward the end of their lifecycle and to enhance the Work, Health and Safety Standard of the site. The proposed advancement won’t prompt an increment in site utilization.

The site is as of now utilized as a base for DEPI’s fields operations in Gellibrand to avoid, plan, get ready and recuperate from crisis circumstances for example , bushfire. The site contains:

– An office zone,

– Workshops for general maintenance, and

-Casual parking area for both staff and visitors.

1.2 Scope

This venture expects to convey the accompanying parts of the building for fruitful completion:

No. Of structures         :         8 buildings

NLA of office & Amenities:         512 m²

GFA of Buildings             :         1810 m²

Area of site                      :         15,996 m²

 

 

 

• Objectives:

The fundamental objectives of the project are:

• To supplant existing structures, which are toward the end of their life-cycle, with new structures that are vitality proficient and ready to appropriately oblige the terminal operation prerequisites.
• To enhance the proficiency of the workplace and warehouse layout.
• To enhance the Work, Health & Safety Standards of the Depot operation
• To guarantee that the adjoining private building residents’ wellbeing is kept up.
• To enhance vehicular dissemination on location.
• To formalize the car parking area for staff, visitors and red plate parking.
• To enhance visual association between the workplace and non-office operations inside the Work Centre.
• To future-confirmation the advancement to suit potential future development.
• To enhance site security
• To update storm water framework inside the Depot to agree to EPA necessities.

1.3 Statutory laws:

• Building Act 1993                

 

Obliges certain “controls” included in the building business to be enlisted like business developers, demolishers, amount surveyors, engineers and so forth.

 

• Planning and Environment Act 1987

 

The reason for this Act is to build a structure for arranging utilization, improvement and security of area in Victoria in the present and long haul interests of all Victorians.

 

• The Ministerial Order 2005

 

Obliges business developers to be protected by a reimbursement strategy which reimburses the developer expert against common risk from cases emerging from the building practioner’s behaviour as a manufacturer, and additionally asserts for misdirecting and beguiling behaviour.

 

• Competition and Consumer Act 2010

Disallows person(s) or organization from deceiving or beguiling. Engagement of one gathering in this behaviour will bring about qualification of other gathering to recover any loss(s) if endured   .

 

• Building Regulations Act 2006

Building professional must consent to essential models of enlistment, development and destruction, wellbeing, support, plan prerequisites and so forth. (VSC 138, 2013)

 

• Fair Trading Act 1999

 

It motivates and controls reasonable exchanging practices, ensures purchasers; accommodate security of merchandise and administrations; as recorded in the agreement.

 

• Fair Work Act 2009

 

Giving, adjusted structure for profitable work environment relations, meeting the lowest pay permitted by law models, giving adaptable working game plans, securing against unjustifiable treatment and separation, and so forth.

 

• Wrongs Act 1958

 

Claim for significant injury if the court is satisfied.

 

• Corporations Act 2001

 

Case conceded against a ruined organization, which has asserted whole that was a piece of the common man.

 

• Administrative Law Act 1978

 

Board neglecting to give sufficient motivation to its activity.

 

• Work and Health Safety Act2011

 

Manages the working environment privileges of the workers/labourers, whether union assent needed for out of hours work.

 

• Accident Compensation Act 1985

 

Claim for harm, for agony and enduring

 

 

 

 

 

 

2. LEGAL FRAMEWORK AND POLICIES:

These Acts applicable to construction phase of Gellibrand DEPI Depot project referred from the legal cases provided on ‘Cloud Deakin’ site, significant to this project, mentioned above are further classified into Contract, employment, industrial relations and other acts as follows:

2.1 Contracts Acts-

Contractual acts are body of law that governs oral and written agreements related with exchange of services, money and properties.
Acts here that come under this category are-

• Building Act 1993  

 

Obliges certain “controls” included in the building business to be enlisted like business developers, demolishers, amount surveyors, engineers and so forth.

 

• Building Regulations Act 2006

 

Building professional must consent to essential models of enlistment, development and destruction, wellbeing, support, plan prerequisites and so forth. (VSC 138, 2013)

 

• Fair Trading Act 1999

 

It motivates and controls reasonable exchanging practices, ensures purchasers; accommodate security of merchandise and administrations; as recorded in the agreement.

• Planning and Environment Act 1987

The reason for this Act is to build a structure for arranging utilization, improvement and security of area in Victoria in the present and long haul interests of all Victorians.

• The Ministerial Order 2005

 

Obliges business developers to be protected by a reimbursement strategy which reimburses the developer expert against common risk from cases emerging from the building practioner’s behaviour as a manufacturer, and additionally asserts for misdirecting and beguiling behaviour.

 

2.2 Employment Acts-

Employment acts are acts enacted by legislation with responsibility of maintaining a high employment level of labour and price stability

Acts that fall under this category are as follows:

• Fair Work Act 2009

 

Giving, adjusted structure for profitable work environment relations, meeting the lowest pay permitted by law models, giving adaptable working game plans, securing against unjustifiable treatment and separation, and so forth.

• Wrongs Act 1958

 

Claim for significant injury if the court is satisfied.

2.3 Industry Relation Act-

This Act is for the supervision of the connection between employers and workmen and their trade unions and to prevent and settle down any misunderstanding or issues arising from their relationship and generally to deal with trade disputes and matters arising amongst them.

Acts under this category are:

• Competition and Consumer Act 2010

 

Forbid person(s) or organization from deceiving or beguiling. Commitment of one gathering in this behaviour will bring about qualification of other gathering to recover any loss(s) if endured   .

 

• Corporations Act 2001

 

Case conceded against a ruined organization, which has asserted whole that was a piece of the common man.

• Administrative Law Act 1978

 

Board neglecting to give sufficient motivation to its activity.

 

2.4 Other Acts-

• Work and Health Safety Act2011

 

Manages the working environment privileges of the workers/labourers, whether union assent needed for out of hours work.

 

• Accident Compensation Act 1985

 

Claim for harm, for agony and enduring

 

2.5 LEGISLATIONAND POLICIES IDENTIFICATION:

An introduction to legislation and policy-

• Legislation is defined as law which is enacted by legislature or governing body. It can have many functions: to regulate, to author       to proscribe, and to provide (funds), to sanction, to grant, to declare or to restrict.
• A policy is a document which outlines what a regime is going to do and what it can achieve for the society it withal outlines any and all methods and principles that the regime or any entity, for that matter, will utilize to achieve its directive.

Legislation and policies relevant to the construction phase of Gellibrand DEPI Depot project as provided on ‘Cloud Deakin’ are as follows-

1-Legislative requirements for project-

1. Acts, authorities, regulations, by- laws, orders, awards and proclamation of jurisdiction where the Services, or the specified part, are being carried out.
2. License, permits, certificates, confirmations and needs of organizations having jurisdiction in connection with the carrying out of the services
3. Fees and charges to be paid in correlation with foregoing.

 

The contractor should meet all legislative requirements except those-

• Are stated in the annexure part-A on Cloud Deakin
• The requirements are to be fulfilled by Principal.
• If a Legislative Requisite is at dissimilarity with a plan of the contract or the Principal’s Project Requisites, as anon as Contractor discover the variances, the Contractor may alert the Superintendent in indicting designating the differences.
• If a legislative requirement-

1. Necessitates – change in work

–   Process of working as may be specified in Principals Project       Requirements

– A rise or fall in a fee or payment of new fee or charge

1. B) Has effect after the 14^th day before the date of closing of tenders
2. C) Could not have been anticipated at that prior date.

Than to meet such changes contractor acquire more or less cost than otherwise would have been obtained, the difference is valued under clause 40.5

• If a legislative demand-

1. Necessitates a change to- Principal’s Project Requirement

– The Project

– The Services

-in a fee or payment of new fee and charge

1. B) Comes into effect after 14^th day before the closing of tenders but could not then have been anticipated by a competent construction manager
2. C) Because the Construction Manager to earn higher or lower cost than otherwise would have been incurred

There should be a Fee Adjustment.

2-The Annexure is also identified as a part of Tender Document and is attached to the General Conditions of Contract and is read as part of Tender

-The copyright in this special condition is owned by the Victorian Building Commission and is in the process of being negotiated for transfer to the Department of Planning and Community Development.

-These special conditions must not be used in any way without the permission of the Victorian Building Commission.

-To make use of these special Conditions client/user must lawfully obtain a copy of AS2124-1992.

-Some clauses of annexure are deleted, and are amended or are added to, the Australian Standard AS22124-1992.

Few clauses changed and amended in Annexure are as follows:

• Clause 2(Interpretation)-the existing definition of ‘contract’ is removed and replaced with new definition
• Clause 5.4 Time For Lodgement Of Security is removed and replaced with new clause
• Clause 5.5 (a)Resources To Retention Moneys And Conversion Of Security is removed and replaced with new clause
• Clause 8.1 Discrepancies Is Amended
• Clause 9.2 Subcontracting Is Deleted And Replaced
• Clause 10 Selected And Nominated Subcontractors Is Amended
• Clause 11 Provisional Sums Is Amended
• Clause 14 Statutory Requirements
• Clause 15 Protection of People and Property
• Clause 16.3 Expected Risks
• Clause 23 Superintendent
• Clause 29 Materials, Labour and Construction Plant
• Clause 35.5 Extension of Time for Practical Completion
• Clause 35.6 Liquidated Damages for Delay in Reaching Practical Completion
• Clause 36 Delay or Disruption Costs
• Clause 42 Certificates and Payments
• Clause 43 payment of workers and subcontractors
• Clause 47 dispute resolution

 

The following new clauses is added to general conditions

• Clause 49 severability
• Clause 50 disclosure of tender information
• Clause 51 audit of and other access to contractors records

 

These all mentioned legislative policies and annexure clause are not the entire set of acts related to this project, but a part of them. These can be related to the risks events that could occur in order to achieve the objectives of the project. These risks are identified and explained in next part of assignment.

 

 

 

 

 

 

 

3. Risks related to the construction of Gellibrand DEPI Depot

 

3.1 Introduction:-

Stats show’s that construction projects are regularly exposed to various risks and hazards arise purely from legal problems and natural hazards. Generally contractors face the unanticipated events which are not estimated in the tender and list of works to do, exciting the contract with unforeseen costs and losses. Risks shouldn’t be ignored and contractors were also suggested to examine during the tender period and risks analysis.

3.2 Definition of Risk:-

Risk is defined as a situation which probably occurs during the time period and life time of a project or contract that has potential effect of damage to property and environment, personal injury and financial loss and loss of time.

3.3 Risks involved in this construction project:-

Generally Risks affects the time, cost, quality of the project, if they are not recognized, analysed. Identified risks involved during construction of Gellibrand DEPI Depot are listed as follows:-

• Improper assistance of tenders
• Insurance
• Document risk
• Land acquisition risk
• Government principals
• Increase in operating costs
• Design variation risk
• Political risks
• Market risk
• Risk due to timing
• Lack of co-ordination between the workforce
• Lack of skilled labour
• Inadequate site information
• Risks of Environmental factors
• Failure of formwork in the structural members
• Safety risk on site for the workers and the other categories of employees
• Legal risks
• Use of quality of material for construction
• Late delivery of the project
• Lack of equipment
• Lack of material
• Late delivery of materials
• Bad quality of workmanship
• Safety at site
• Insufficient planning
• Weather conditions
• Change in laws and regulations
• Delay in project approval and permit
• Inconsistence in government policies
• Excessive contract variation
• Poor supervision
• Compliance with government
• Delay in payment for claim
• Cash flow difficulties
• Lack of financial resources
• Pollution
• Ecological damage
• Health and safety risks
• Contractual risks
• Cost risks
• Schedule risks

3.4 Categorization of risks:-

The identified risks are categorized into four parts as Contracts, employment,         IR (Industrial relation), other legal risks.

Contracts risks:-

Contracts are subjected to the terms of an agreement and the principles of common law. The validation and effectiveness of contracts can also be subject contracts law. Contracts can be simple written agreements, verbal agreements, and complex legal documents. A contract has an identifying start and completion date according to legal rues.

Type of contract risks identified in this project are as follows:-

Improper assistance of tenders:-

Tenders should not seek or obtain the assistance of employee, agents, contractors, service providers of the departments of the state in the processing and preparation of the tenders.

Insurance:-

Provision of insurance is generally considered as a factor in the contract documents as required in the event of a major loss in the project.

The main classification of insurance commonly required in construction projects for this project is as follows.

1. Contract works

This type of insurance is provided generally as a combination of material damage and legal liability policy. The policies insures against physical damage are

• Works under construction
• Project construction material stored on and off site
• Contractor’s plant and equipment

 

2. Public and product liability
3. Professional indemnity
4. Industrial special Risk

Documented risk:-

In the every stage of the relationship between the parties of the project is documented so there may be some new excess allocation of risks at different stages at which these risks are evolved are:

• Finance or loan documentation- In detailed financial or loan details should be presented in this document
• Agreements among the bid team- there should be an proper and detail agreements should be done between the bid team
• Tender documents and submission
• Works to be carried out in contracts- list of works and proper scheduling should be done in this document
• Contracts documents between contractor and consultants
• Contracts between sub-contractor assigned by contractor
• Ongoing maintenance contract documents

Risks are not only limited to the documentation but also arise by allocation and assumption from project documents from the event of occurrences which takes place in some parts of designing, executing and operating the project. Some such kind of risks are anticipated and some risks are unexpected are like:

• Failure of the parties are expected as contractually required.
• Unexpected site conditions or events.

Variation in proposed Design:-

This variation effects the objective of the project is to be finish in time, depending on the type and nature of variation, hence time and cost were constant.

Insufficient information of the site:-

This is an important risk which creates a many issues in the scheduling, if these are not predicted at the very beginning stage of project.

Employment Risks:-

In the construction phase of the project, there are few situations when employers were not follow the lead of contractor or subcontractor during the execution time for other reasons, being variation in drawings, employee with lack of required skills or employee anti to the contractors, this leads to the risks.

The different types of risks fall under employment risks are as follows:

Conflicts between to contractors:-

Conflicts between two contractors like contracts between contractors and consultants or contractor and sub-contractors assigned by the contractor (electrical contractor and plumbing contractor) leads to the overlapping schedules, delay of the work, quality of the work and contractual obligations.

Low management capability and unskilled labour:-

Unskilled labour and low management abilities leads to the effect of quality and standards of project and time and financial loss, delay in the delivery of the project. Unskilled labour leads to the cot over run of the project.

Health and safety Risks:-

Improper health standards of the labour or employee leads to the delay in the delivery of the project and increase in the budget of the project than proposed.

The employee and labour from natural hazards or accidents at the work site during the execution time of the increases the project delivery time and cost of the proposed budget to the project.

Industrial relations Risks:-

The supervision of the relation between employers and workmen and the trade unions to prevent and settle downmisunderstanding or issues raised from their relationship and generally deals with trade disputes and matters raised among them leads to the risks as follows:

Delay in the procurement of materials:-

Delay in the standards of materials like pre-fabricated structure concrete and steel member’s leads to the delay of the project, increases the cost estimation as spending more amount on the procurement materials.

Short-age of construction materials:-

Shortage of required construction materials during the execution time of the project increases the cost of the materials needed and shows impact on time and cost of the project and quality of the project as it exceeds the estimated cost for the project.

Other legal Risks:-

The other legal risks that may evolve in the execution of Gellibrand DEPI Depot project are as follows:-

• Land acquisition risk
• Jobs that are completed lately or increased cost exposure
• Government principals- Rules and regulation for the execution of the project with specifications like set-backs, heights etc.,
• Late delivery of the project- late execution of project due to the natural hazards or sudden changes in the proposed details.
• Increase in operating costs- risks that may occur with sudden increase in labour cost, materials cost, land values etc.,
• Design and construction defects which effects the execution on the project than proposed date
• Deficiencies in other framework or administrations upon which the perfect operation of the project depends like development of feeder roads, urban development.
• Market risks- increase in the project value during the construction by easy accessible of public transport extension of roads etc.,
• Political risks- changes occurred in policies of government and ongoing support for the ongoing project.
• Environmental effects- damage caused through noise pollution due to heavy machinery, neighbours’ complaints during the execution of project, effects the cost of the project as well as the reputation.
• Recurring work- improper selection of zones for various foundation works which leads to the failure of the proposed structure and which effects the quality of work, delay in the project and increase in the budget of the proposed budget of the project.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Ranking the inherent Risks based on their estimated severity

The inherent risks events in the given Gellibrand DEPI Depot project are mainly classified into four types, they are as follows:-

• Industrial relations Risks
• Employment Risks
• Contract Risks
• Other legal risks

Contract risks:-

In my opinion the rank 1 is given to contractual risk because due to there are many major catastrophic reasons in the contractual risks when compared to other three risks

They are:-

Insurance:

The workers who are working in the site must be insured compulsory for their additional safety. If the workers injures themselves during the work the insurance can be claimed

Even though the workers are not injured during the total completion of project the total insured money should be paid to the insurance company which adds additional cost to the project.

Complete percentage of the treatment is not granted by the insurance policy which means the contractor should pay the money for injuries which cannot be claimed through insurance. Which is catastrophic consequences to the project.

Documented risks:-

There should be proper detailed financial details and bid otherwise there are conflicting interests

Variations in proposed design:-

The cost and completion time of project are stake depending upon the type and nature of variation.

Insufficient information or inaccurate cost. Estimation which are likely to increase the budget estimated when calculated appropriately and increases contractual obligations.

 

Employment risk:-

In my opinion the rank 2 has been awarded to the employment risk based on the following considerations they have major consequences of project.

Conflicts between contractors:-

Conflicts may likely arise due to the overlapping schedules of two contractors.

This may lead to delay of work and quality of the wok is affected.

This conflicts also leads to contractual obligations which has major consequence on the project.

Low management competency and unskilled labour affects the quality of the project.

This also leads to resulting in time and financial loss.

Due to this there would be moderate consequences on the project

Industrial relations risks:-

In my opinion the rank 3 is given to industrial relation risks due to the moderate consequences on the project:

The material which is used for the construction of the project either it may be prefabricated structural steel or cement if they are delivered in delay then this results in delay of the project.

This also leads in the increase of the budget estimation if more amount is spent on procuring the materials sooner.

Inflation of construction materials during the construction phase my lead to impact and time on the project.

Which will also leads cost and quality of the project as it results the total cost exceeding the estimate.

 

Other legal Risks:-

In my opinion the rank 4 has been awarded to other risks because they do not have an impact on the project as much as the above three.

The noise pollution caused by heavy machinery causes environment damage.

This sound pollution gives disturbance to the neighbours staying besides or nearly project.

This also effects the finances of the project as well as reputation.

Late execution of project do to the natural hazards or sudden changes in proposed details.

Recurring work is likely to happen due to improper site selection where it can be lead to structural failures which effects the quality of work.

Objectives:-

• Friendly atmosphere at the site should be maintained
• Legislation rules must be followed and getting the required permits.
• Construction schedule must be planned correctly
• Labours must be trained to overcome accidents during constructions and safety equipment should be provided to the workers
• Managing times for heavy tasks
• Financial status must be maintained till the complete of construction
• Eco-friendly must be maintained
• Ethical values must be followed
• Finishing the project with in agreed time frame making sure achieving the miles stones as planned
• To maintain public safety for the work force of the project
• Minimizing the damages and environmental pollution caused by the project
• Providing amenities to the work force
• The relevant site documents should be taken from the clients
• Maintain effective communications between the clients and the contractors
• To avoid recurring and future costs of project.

 

 

 

 

 

 

 

5. Legal framework:-

The legal framework of the project is to be made through identifying the relevant legal cases and acts as follows:-

 

S.No	ACT	Reference	Concerns	Yes/No	Comments
1	Employment act	Fair work   act 2009	they are enacted by legislations with responsibility of high employment level of labour	Y	Giving adaptable working game plans
		Wrongs act 1958	Claim for significant injury if court is satisfied
2	Industry relation act	competition and consumer act 2010	To prevent or settle down any misunderstandings or issues arising from their relationship	Y	Misunderstanding take place
		Corporation act 2001	Cases considered against a ruined organization	Y	Asserted the piece of whole common man
		Administrative law act 1978	Board neglecting to give sufficient motivation to its activity
3	Other acts	Work and health safety act 2011	Manages the working environment privileges of the workers
		Accident compensation act 1985	Claim for harm, for agony and enduring
4	Contract	Building act 1993	Obliges certain controls to be enlisted like business developers
		Building regulation act 2006	Building professional must consent to essential models of enlistment development and destruction

 

 

 

 

Risk management approach:-

 

Grading	Group	Description
1	Very low	Risk is extremely very rare to occur
2	Low	Risk is rare to occur
3	Medium	There is a chance that the risk will occur
4	High	It is highly possibilities that the risk will occur
5	Very high	It is almost the certainty that the risk will occur

Objective	Category of Risk	Risk Event	Consequences	Likelihood Rating
Friendly climate at the site	Time	Disputes among the members	Work may delay	2
Getting obliged permits and taking after the legislation rules	Time	Illegal tasks	Project may be stopped and the contractor will be prisoned	1
Gathering data about costs and keeping up great contacts with material distributors	Time	Price decrease and late in exporting materials	Delay in activities	3
Giving security equipment’s and preparing labour in utilizing them	Injury	Accidents risks such as injuries or deaths	Legal case about the project, time and money waste	4
Allocating time for heavy tasks	Time	Iack time for other tasks	Whole schedule should be re planned	3
Keeping up financial status	Finance	Fail in paying wages for employees and delay’s in delivering materials	eliminating employee’s from project	5
Keeping up eco-accommodating environment		noise and air pollutions	Disturbance to neighbours	2
Correct planning of construction schedule	Time	Confusions in work allotment to be scheduled in time	Fail to complete the task in time	3

 

 

 

6. REFERENCES:

 

1-Cloud Deakin

https://d2l.deakin.edu.au/d2l/le/content/314582/Home

2-SRQ763 LEGAL RISK MANAGEMENT

https://d2l.deakin.edu.au/d2l/le/content/314582/viewContent/2542834/View

3-Annexure to AS2124 Part-A-Unit notes on Cloud Deakin SRQ-763

https://d2l.deakin.edu.au/d2l/le/content/314582/viewContent/2529232/View

4-Article by Mr Saleh Majid (Advocate (Iraq), Rechtsbeistand (Germany) for business laws of Arab countries, B.A.Law (Baghdad), Dip.Air Law, Postgrad Dip.Law (London), M.C.I. Arb.http://www.mondaq.com/x/141772/Building+Construction/Risks+Analysis+Under+Costruction+And+Engineering+Contracts