Selecting a contract environment for demolition, dismantling and mining
by Leonard van der Dussen
It is all too easy to underestimate the contractual requirements to provide for the successful removal of some structure or plant; or to contract the simple repetitiveness of tunnels created by contract mining. Get the basics right, and it is easy – much less requirement for details than for original construction, but get the basics wrong or forgotten, and the contractual consequences may be a spectacle with more demolition and destruction than the works being taken down itself.
This paper discuss the similarities and differences between construction, erection and installation compared to demolition and dismantling in a contractual context where one party hires another to do the work. Mining has a similarity to demolition in that the end result is focused on leaving an opening as opposed to working plant or a newly created structure. It is all in the context of suitable applications (or not) of FIDIC or NEC for contracting works of construction related nature.
The paper is of practical nature and information sharing from knowledge and experience without full scientific research methodology. Its value is in fact in seeking to contribute to improved practical understanding of how to use or not to use FIDIC or NEC contracting for the purposes of what is termed here as reverse construction. The discussion is mostly from an engineering plant removal perspective, which is the more complex type of demolition and dismantling compared to removing static buildings.
For ease of reference a phrase reverse construction is coined, meaning works of demolition, dismantling and mining, or in another sense, works that require construction type effort, equipment and skills but of which the end result is leaving empty space behind.
The employer is the party desirable of the works, and the contractor the party executing the works.
A contract is the description of the arrangement between the employer and the contractor.
RELEVANCE OF REVERSE CONSTRUCTION
Demolition and dismantling are negative concepts compared to be able to look forward to something to be erected by means of construction and installation. Construction and being constructive goes together. De-stroying things or taking apart something that had been carefully assembled does not feel constructive! Mining as a form of reverse construction is more positive, since it creates space for and brings the mineral bearing ore to the plant. It however used to be a mostly owner-operated activity, and the question whether contract mining deserve much attention, must be answered. The global village is increasingly filled with buildings, structures and engineering plants. Whether buildings for business or recreation, structures for processing plants (mining or other manufacturing), trade spaces and many other applications, it is obvious that at some stage age, redundancy or the need to remove something properly after damage caused by man-made (e g explosion) or “natural” disasters (e g earthquake) may necessitate demolition and dismantling. Power stations are reaching the end of their useful lives, mines are increasingly becoming worked out and redundant, and the increasing awareness of the need for rehabilitation adds to the demand for demolition and dismantling. The need for expedient and efficient clearing up of the results of natural disasters, and demolition before reconstruction of infrastructure such as roads and railways, adds to the growing industry of reverse construction. It is not necessarily the natural disasters that are on the increase in number and ferocity, but the number of structures available to fall prey to disaster that has increased extensively in the past century. For mining, the need for upscaling almost on demand to mine in accordance to commodity price fluctuations and consumer patterns, and increasing competitiveness dictating shorter lead-in periods to get to the actual ore, and mining in exotic locations where skills has to be imported, lead to increased demand for contract mining in which a contractor compiles a skills and equipment pool that can be contracted to perform mining activities at relatively short notice. Vertical shaft-sinking is well established over decades in this regard, while ongoing contracting of decline and waste development contracts, and even reef mining has increased in the past few years. The vertical shaft-sinking has significant construction components (e g collar, headgear) and thus with its mining element resembling a form of earthworks, worked reasonably well with typical construction contract commercial frameworks; the ongoing underground development which often mixes development with mining, and alters scope often, is more difficult to pin down with traditional construction contracting. The construction related contracting models provide frameworks that can assist with reverse construction, and the extent of reverse construction did not yet justify it to be seen as a separate industry. There are specialised demolition and salvaging contractors, but in many instances, the work they do can also be done by traditional constructors. The evident exceptions are implosion and directional explosives based techniques to demolish high-rise buildings or stacks (e g chimneys). As open pit mines expand and swallows existing plants, plants built in the upswings and upscaling of the twentieth century are becoming redundant, factories, power stations and petroleum plants are reconfigured to improved technology, and outsourced mining gains popularity, the demand for reverse construction is increasing and it make sense to establish more dedicated contractual frameworks to tender, contract and execute such works efficiently; in the same manner that first the building industry, and then the civil construction and other construction and installation industries organised itself in contractual frameworks of widespread acceptance and understanding. Mining can be seen as normal construction with a high excavation content. In the case of normal construction however, the excavation is usually not an objective in itself, but only a temporary means of placing structures. Furthermore, besides the exclusive nature of mine excavation, the overwhelming scope and cost of mining is in the excavation itself and thus the contract it primarily reverse construction, despite elements of construction (e g support works) and installation (e g piping and cables) elements.
ATTRIBUTES OF REVERSE CONSTRUCTION
Difficult to quantify: At first glance, the scope of a demolition contract appears to be very well known: there is a full-scale model of the works in its exact final location available for inspection. The apparent clarity of scope is belied once it is realised that the information about foundations may be less well known, and that the drawings of the structure may not be available and thus it is cumbersome to determine dimensional information to quantify the works.
Even if the drawings are available, the reality of construction of foundations to not have the exact straight shapes that are depicted on the drawings, and that construction mishaps like filling a incorrect excavation with mass concrete (a good idea at the time, and since it is better than in situ material, no further attention was paid to it at the time of construction).
In similar fashion, steel columns heavier than called for on the drawings may have been installed, and nobody would have complained during construction if the portions of 20MPa concrete tested at 40MPa – and hardened through time even more.
Even if construction drawings are available, alterations over time are often not captured in an organised change management fashion. There may be mezzanines added in the factory, or a slab was strengthened with additional steel support underneath to receive a hydraulic pack for equipment installed years after the initial plant was erected.
Few variations and extras: the effect of the full-scale model being available has the advantage that there can be little if any additional work or variations. There may be need for instructions to decide on safe and efficient working methods, or to direct on salvaging compared to demolishing of materials, or to deal with the unknowns such as unexpected conditions of hidden parts, but the scope can not grow unless something clearly additional such as demolishing another adjacent building is added. It is however important to provide in the contract for clear and expedient decision-making on safety, health, environmental and efficiency issues, since demolition can often not be stopped or is costly to interrupt to await decisions. The method of costing of variations and extras must be provided for.
Removal more difficult to predict than construction: construction is planned from small units assembled into large units, and with malleable binding components (e g cement mortar or concrete) which hardens irreversibly. It sounds silly to describe the obvious in this manner, but once reality on site kicks in that even bolts are harder to remove than to install due to rust and dirt, it is realised that some thinking about how to describe, plan, quantify and contract such works which contains unknowns is warranted. What is the definition and the associated cost of removing a “rusted” bolt? A new bolt is a known entity defined by meticulous specifications from the factory up to the positioning, nut tightening and corrosion protection; it is much harder to define the level of rust, settling of structures affecting the bolt and even the consequences of removing the bolt; and the bolt is but a simplified example of the more complex picture of perhaps planning to remove a section of a structure as a whole, but not knowing the structural conditions of the elements of which it consists. Handover is nothing: The reverse construction contract’s work is complete when there is nothing left. This attribute makes the adjudication of whether or not completion was reached, easier than for construction and installation. It is easy to see whether everything is cleared up or tied down and placed where it should be. There is usually no need for further guarantees, since the works are complete by reaching the point of there being nothing left, and no further proof is required that is was correctly done. There may be exceptions e g where the effect of collateral damage of removing a building in a build-up area may show only over a period of time, or where salvaging and re-use is involved, and the effect of possible damage to equipment or structures can be assessed only when the re-use comes into effect. Even in these cases, the end result of the contract is static and the majority of works and effects can be inspected and concluded at the end of the contract. May require damage control: demolition sometimes use major swipe methods, such as explosives. The imploding of buildings or cooling towers are well-known examples. Dismantling of steel structures or the removal of major equipment may likewise cause forces and unpredicted swaying or leaning over or collapse. These risks must be clearly identified and allocated and specifications agreed on the work methods, limits and damage control should unexpected results occur. Require temporary use of permanent installations: in engineering plants, the most efficient way of removing major equipment, is often by using the overhead cranes and other maintenance arrangements to which the plant was originally constructed. This requires power supplies, equipment and structural elements to be preserved temporarily until this has been used to remove the major plant, and then the aforementioned elements itself are removed. In a total dismantling situation, this is entirely for the contractor to plan and execute, but in the situation of removing portions of a major plant which remains in operation, or to dismantle the old plant adjacent to the newly built replacement plant, maintaining electrical supply and co-ordinating maintenance of overhead cranes to the last use is more difficult than meets the eye e g if the new plant uses the existing (upgraded) substation, and the electrical supplies to the old plant has been removed, or the new plant must be placed on reduced power consumption for the time that equipment in the old plant is required to operate for removal purposes.
In short, the contract must take cognisance and provide for sharing and integration arrangements. It is tempting to simply state that the contractor must provide everything in self-sustained mode, but on large plants with major sized equipment, such approach to dismantling can be very costly, risky and inefficient.
Widely varying tenders: perceptions and methodologies as well as the difficulty to obtain definitive quantitive information (e g drawings are not available) cause wide variances in tenders for demolition and dismantling. The compilation of suitable pricing schedules for comparable and fair tendering, as well as interim payment calculation and easing final accounts, is a separate topic. It is made easier if the general conditions of contract can accommodate various pricing options to enable the use of the most suitable way for each contract.
PRACTICAL ISSUES TO BE MANAGED
The removal contract can be simpler than original construction if the allocation of responsibilities, the distribution of risk and definition of completion is duly attended to, such as the following issues:
CONTRACT COMPILATION CONSIDERATIONS
The considerations of a contractual framework for reverse construction is much the same in principle as for normal construction, but the samples and content is different. Generally it is about the allocation of responsibilities (“who”), definition of the work content (“what” and “how much”), time and quality management (“how”), cost and payment (“how much”) and assigning risk should something go wrong.
The complexity of contract required depends on the complexity and scope of the works: if a small single storey office building is in the way of a new development, it may well be sufficient to have a small works contract on a lump sum basis, since the full-scale model is a true reflection of the works required, and there are unlikely to be unknowns or unexpected hazardous situations.
For anything larger which have any of the elements of height, long duration, pressure, toxic material, working plant interface, heavy structure or salvaging of sophisticated or major sized equipment, the contractual framework must be at least as sophisticated as the contract by which is was constructed.
The selection of the probably most successful set of general conditions, should consider:
The specifications and the pricing schedules for reverse construction are important topics and an important part of the contract compilation. It is however outside the scope of this paper, which is delivered as part of a FIDIC and NEC conference and thus focused on the conditions of contract portion.
Both FIDIC and NEC are suitable for construction and can be used for reverse construction. The flexibility of NEC however in this case has certain attractions (the “engineering and construction contract June 2005” is used as reference document):
FIDIC is strong on the right to vary from the Engineer’s perspective (e g clause 13 – using the 1999 “red book” as reference), and thus the necessary instructions and variations can be effected, but there is little provision for communication from the Contractor to the Engineer: clause 4.6 calls for co-operation in an instructive way to the Contractor to allow work by others, clause 4.12 calls upon the Contractor to notify the Engineer unforeseeable physical conditions and clause 13.2 allows for proposals of value engineering, all of which are not designed for regular information exchanges as are often required for reverse construction.
The ever-changing mining plan benefits significantly from a clear and obligatory two-way information exchange, the more so in modern mining that changes direction and priorities to derive benefit from the speed of market information and the technological advances by which mining is becoming increasingly selective to optimise income in relation to market opportunities.
The FIDIC conditions can be used with a variety of pricing schedules, but the direct wording strongly favours remeasurement with bills of quantities (e g clause 12.2) which is not always the most suitable approach to the contractual costing of reverse construction.
NEC’s immediate flexibility e g for activity schedules require less tweaking in the particular conditions and thus has less risks for payment disputes. Whether prevalent knowledge and appropriate skills are available in our current market to truly move outside the bill of quantities scenario, is a question left unanswered here, but in theory the option of activity schedules or a hybrid form with bills of quantities is the right answer.
Reading the NEC “engineering and construction contract” reveals that reverse construction was part of the thinking when the contract suite was designed e g clause 22 (“Using the Contractor’s design”) refers inter alia to “demolition”.
With regard to safety, health and environmental matters, the “spirit of mutual trust and co-operation” (NEC clause 10) compared to the strong role and more one-sided leadership assigned to him by FIDIC (e g clause 3), can be debated: demolition and dismantling contractors are often specialists in their fields, and not always accustomed to interventions by others in their methods and execution of the works. Besides, the Engineer usually just wants the particular structure of plant out of the way and does not have much detailed interest in the matter and therefore may require only an occasional strong intervention procedure, in which case FIDIC may at face value be more appropriate. The inclusion of a clear safety, health and environment (SHE) policy and a clause or two about its overriding importance can however address this in the NEC context. NEC itself provides the “Risk Register” mechanism (clause 11.2(14)) which is available as a contractually defined tool to pre-agree SHE matters.
It must be realised that compared to original construction which mostly consists of small parts constructed, checked and controlled sequentially, reverse construction often uses methods of large sectional removal in a context where the end result is not for something to stand up, but to be in pieces on the ground, and thus temporary support and care of the equipment and structures is less evident in the minds of the executors. It requires thus a very dedicated effort contractually and by management to uphold SHE standards when reverse construction is performed.
Both suites of conditions of contract has good provisions for handover procedures, on how to determine the works to be complete, but in both cases the relevant definitions must be written in particular conditions to suit the specific required level of clearing, removal, salvage storage arrangements, removal of temporary works and making good.
GUARANTEES, RETENTION AND COMPLETION DATE
Requirements costs money and must not be enforced merely as a habit: in the case of reverse construction, some lateral thinking about the appropriateness of guarantees, retention and the completion date is required.
The performance guarantee is probably necessary: its purpose of exerting pressure on the contractor to perform and not walk away from the works is equally valid as it is for the construction of something new. However, if the works are relatively simple and does not have major risks of height, volume or difficult works such as removing deep concrete foundations, even this may not always be needed.
The withholding of retention from payments provides cash in hand to deal with works not completed by the contractor and to pay for damage caused or utilisation of employer’s resources (e g fuel provided), and in principle is desirable. The payment thereof however deserves different thinking, since in many cases the end result of reverse construction is conclusive: once the site is clean, all debris collected and temporary works removed there is no need for withholding retention further for a warranty period.
This will differ for various situations, e g if a structure was removed adjacent to structures belonging to others, there may be necessity for a period to elapse to check for any consequential damages, but generally something that is removed, can be checked as being removed and signed off.
In mining there is the argument that there could be latent defects, but once legislation and the approval procedures for progressing further into a mine only after the mined section is declared safe to certain standards, there is often not so much reason to withhold retention for protracted periods after completion. The amounts of money changing hands in the mining environment are large, and a percentage of retention withheld adds up to significant financing costs, which can be lessened by structured retention releases in accordance with sections completed, and not holding on to retention contrary to safety declarations of completed works.
The cost of underground structures to which traditional thinking of withholding retention for a warranty period may apply, is usually very small compared to the overall works, and in the ongoing contract mining contract, there is an more than adequate pattern of monies due to the contractor upon which the employer may call for remedial works if necessary. If this is considered too vague and contractually unsound, then at least the retention withheld after completion should be only on those construction portions.
Retention periods after completion for reverse construction can be significantly shorter than for construction.
If a plant or structure is to be removed in a location where it is not in the way of any other income-generating activity, the enforcement of a completion date deserves reconsideration. Stringent completion requirements and the risk of penalties (or liquidated damages) may incur unnecessary costs.
The opposite may be true for removing plants or portions of plants where new technology or capacity replaces the old, which is in the way of commencing with production or is hindering production. In this instance, completion dates, target incentives, a clear completion date or even sectional completion dates may be worth its while.
Every contract’s scope and requirements will determine its needs: reversing the thinking about conditions of contract and its appropriateness should be part of the planning.
The temptation to see works of reverse construction as highly defined and delimited, must be avoided: all the elements that require management and must be cast into controllable formats to allocate risk and demarcate responsibilities, are present and thus good contracting is required. Such contracting must consider its own cost as well, and be commensurate with the size, complexity and particular circumstances of every sets of works.
Reverse construction can be contracted using available and known conditions of contract. Both FIDIC and NEC can be made work, but NEC provides more flexibility and the interactive environment from which reverse construction can benefit.