Details

Case

CONSTRUCTION CONTRACT DISPUTES IN PAKISTAN: THE CASE OF LAHORE ORANGE LINE METRO PROJECT

Zehra Waheed

INDUSTRY : Transportation

AREA : Production & Operation Management

ORGANIZATION :

LENGTH : 11

LUMS No : 03-869-2020-1

PUBLICATION YEAR : 2020

KEYWORDS:

Construction, procurement, contract management, conflict resolution, Pakistan.

DESCRIPTION:

This case covers the Orange Line Metro Project in Lahore, Pakistan. Priced at US$ 1.63 billion in 2016, the project was one of the costliest transport infrastructure megaprojects undertaken in the history of the country at the time of its inception. The case is seen through the eyes of the protagonist, Uzair Shah, who is Project Lead at the Punjab Metro Authority (PMA - the project owner) at a juncture when the most serious contractual dispute in the project’s history had erupted between Lahore Development Authority (LDA - the project’s interface with the vendor) and one (of two) major civil works contractors involved in the transport megaproject. The dispute could not have happened at a worse time. The project had already been encumbered by delays due to work stoppages at eleven heritage sites dotted across the city due to court stay orders, procurement delays, design changes and a prolonged land acquisition process especially in the city center. With project delivery expected to match the imminent general elections in July 2018, the political pressure to complete on time was enormous. While quality issues had been emerging with Maqbool-Colson Joint Venture (MCJV – the civil contractor with whom the dispute arose) for some months, LDA had remained aloof and considerably adversarial in their dealings with MCJV. Eventually, in October 2016, this relationship had soured to such an extent that the relationship seemed irreconcilable. LDA recommended to take the contractor to court for non-performance. The decision that Uzair faces in the case is whether to take LDA’s advice and take the contractor to court (terminate the contract, claim their performance guarantee amount and appoint a new contractor); or negotiate a solution with them and continue with their services. This decision has serious implications not only for the project’s schedule (whose completion was both politically sensitive), but also on the project’s overall cost. Replacement contractors, it was expected, would have to be brought in at considerably higher costs. These higher costs were predominantly associated with the fact that the new contractor would have to complete the remaining civil works on a fast-track basis.

LEARNING OBJECTIVES:

• To allow students to understand the nature of procurement required to be undertaken for a large construction project, the various procurement routes (selective and open procurement and issues that surround the critically important contract management phase of the procurement lifecycle. • To articulate PMI ’s definition of a ‘contract’ and to be able to identify the major types of contracts and risks associated with each. • To develop an understanding of reasons why contractual disputes between parties emerge and understanding of the principled negotiation framework allowing a win-win for parties to a conflict who are not adversaries and must work jointly to achieve mutual goals. • To develop an appreciation of relationship management of contracts and partnering with contractors to increase overall client satisfaction and to create better value through public projects.

SUBJECTS COVERED:

Production and Operation Management