This article is intended to provide a general introduction to contracts and their management and administration

A contract is a legal document that defines the following : 

• Rights  and entitlements of the parties  – What each party receives or is able to receive  from the contract
• Obligations and responsibilities of the parties – What each party is required to do or deliver under the contract

Under most legal codes for a contract to be binding the following should have happened 

• One party has made an offer (tender) to carry out certain works
• The other party has accepted the offer (tender award)

The contract format will be either

• A standard form i.e. a contract published by a recognized body/authority

Or 

• A non standard or “ad hoc” form i.e. a company’s own form of contract

The most common form of standard contract is published by a professional body known as FIDIC. For a construction project, the key components of a contract are generally

• The Scope of Works – The works to be executed
• The Contract Price – The price to be paid for the completed Scope of Works which typically is either
  • A fixed Lump Sum
  • An adjustable Sum (based on remeasurement and/or effect of inflation of construction prices)
• The Time(s) for Completion – The time allowed for the execution and completion of the Scope of Works
• The apportionment of risks between the parties
• The obligations and responsibilities of the Contractor
• The obligations and responsibilities of the Employer

To define these components a typical contract will comprise

• Drawings to define the extent and scope of works
• Technical Specifications to define the material types and quality standards
• General Specifications to confirm general obligations and responsibilities of the Contractor and the Employer
• Bills of Quantities to define the works quantities
• Contract Conditions to define the following :
  • Legal obligations and responsibilities of the Contractor and the Employer,
  • Apportionment of project risks
  • Remedies (solutions) if the project does not proceed as planned

The management and administration of a contract can be divided into two stages, as follows

• Pre Contract (Tender Stage)

And 

• Post Contract (Execution Stage)

The Pre Contract Stage of Contract Administration will generally involve the following

Technical and Work Scope Issues

• Technical scope review and identification of technical risks
• Plans to overcome or manage identified technical risks

              Contract and Legal Issues 

• Review of contract and identification of legal risks
• Plans to overcome or manage identified legal risks

             Commercial and Cost Issues

Estimate project costs including recognition of identified technical and legal risks, current and future market conditions, and relevant past experiences. The key issues to be identified during the contract review are 

Cost Issues

• Type of Contract Price (Lump Sum or Remeasurement)
• Grounds for changes to the Contract Price

Payment Issues

• How and when will the Contract Price be paid?
• What happens if a payment(s) is late?

Time Issues 

• What is the Time for Completion and are there specific milestones or key dates?
• If the Contractor is late what are the penalties?
• What are the grounds to extend the Time for Completion?

Scope Issues 

• Who is responsible to prepare the design of the project?

General Risk Apportionment 

How does the Contract apportion the key project risks including :

• Price inflation
• Natural Disasters and Adverse Physical Conditions (Underground conditions and Climatic Conditions)
• Errors in the Contract Documents
• Acts of Governments

The Post  Contract Stage of Contract Administration will generally involve the Contractor protecting and realizing his cost and time entitlements under the Contract. To achieve this a typical Post Contract Administration Strategy should include the following

• Establish a post Contract Manual for Staff to follow to identify the following
  • Contract procedures and requirements for claiming additional payment
  • Contract procedures and requirements for claiming additional time
• Establish a system to
  • Maintain detailed project records on a daily basis for numbers and activities of Site labor and Plant and Equipment
  • Monitor and record actual  works progress and compare it to planned progress
  • Identify changes/variations to the original work scope

CONCLUSION AND CLOSING 

80 % of the word CONTRACTOR comprises the word CONTRACT!

For all Contractors, the effective analysis and management of any Contract is a key part of business success

It is hoped that all of you in years to come will activity contribute to the administration of our contracts and that this presentation has given you some enthusiasm for the subject of contract management

Author: James Bristow