Handbook of Contract Management for Construction professionals as per FIDIC

CHAPTER 1 INTRODUCTION

Some of Key Definitions which readers should be aware of are:

∗  A Project Management is to Manage the smooth functioning of the Project and co-coordinating with various Stakeholders of the Project and the Government department / Government Authorities.

∗  Construction Management is to manage the smooth function of construction activities and co-coordinating with various contractors

∗  Contract Management is to manage the smooth function of Contract between parties and the Stake Holders.

The Contract Management Cycle comprehensively covers the following topics:

1. UNDERSTANDING CONTRACT MANAGEMENT

WHAT IS CONTRACT?

WHY CONTRACT ESSENTIAL?

VARIOUS TYPE OF AGREEMENTS

WHAT IS CONTRACT MANAGEMENT

WHY FIDIC?

2. PRE TENDERING PROCESS & PROCEDURES

PROJECT APPROACH

BUDGET / COST PLANS

CONSULTANT APPOINTMENTS

APPROACH TO TENDER AND TENDER PROCESS

RECOMMENDATION / AWARD

UNSCCESSFUL NOTIFICATION

3. POST TENDERING PROCEDURES

4. CLAIM AND DISPUTE MANAGEMENT.

LEGAL DOCUMENTATIONS

SETTING UP RPOCESS AND PROCEDURES

CONTRACT FORMATION

CERTIIFCATION

CHANGE CONTROL MANAGEMENT

VARIATIONS PROCEDURES

TAKING OVER

DEFECT LIABILITY

CONTRACT CLOSEOUT

DISCHARGE/MAINTENANCE/ PERFROMANCE CERTIFICATE

GEMENT

CLAIM REJECTED / UNACCEPTED

ADB _ ADJUDICATION BOARD

AMICABLE SETTELEMT

ARBITRATION / LITIGATION

CHAPTER 2 UNDERSTANDING CONTRACT MANAGEMENT

•  A Contract may be defined as an Agreement, generally written (may be oral) between two or more parties enforceable by law, whereby the parties to the Contract promise to do or refrain from doing; some specified act or acts which must be legal purpose.

•  Generally, one party is framed as Seller who provides a service or a supply a product or perform a project for the other part called as the Buyer in exchange for an agreed consideration.

•  Contracts are administrated with the Contract Law, which is based on the Common Law / Civil Law, which are different from Constitutional law, statutory law and Regulatory law.

❖  ESSENTIAL OF VALID CONTRACT

Involve two or more parties that have the capacity or competence to contract;

It should define the identity of the parties / stakeholders to the Contract;

Detail the agreement, which include the transaction and consideration;

The offer, acceptance and mutual assent;

Between competent parties, and in correct form;

Legality of the purpose of the Contract;

Should not violate a public or statues.

❖  CONTRACT CATEGORIES

Construction Contract:

Service Provider Contract:

Partnership Contract

Franchise Contract

Joint Venture Contract

Employment Contract

Sales / Service Contract

Supply Manufacturing Contract

Lease / Rental Contract

Non-disclosure / Confidentiality Contract

❖  CONTENT OF A CONTRACT:

•  Contract Agreement

•  The LOA / LOI / NTP

•  The offer / Proposal

•  Tender Clarifications / Bulletins / Addendums

•  General Condition / Particular Condition

•  Specifications

•  IFC Drawings

•  BOQ / Schedule of Price

•  Bonds and Insurances

•  All other Tender Documents and relevant Documents

❖  Key Aspects of Contract Management:

•  Successful contract management covers the period from the beginning of a procurement until after a contract ends.  The receipt of goods and services at the right price, quality, and on time as well as proper compensation of the contractor is the goal of a successful procurement. 

•  However, poor contract management often results in end-user frustration, reluctance to use new vendors, agency acceptance of poor quality service or goods, increased costs due to lack of quality or overpayment to contractors, lack of contractor accountability, and generally poor contractor performance.

•  A good contract is a means to an end.  Simply enforcing the contract, however, does not necessarily result in a successful relationship with the contractor.  Success should instead be measured by the effectiveness of the program that the contract supports.

❖  CONTRACT MANAGEMENT

•  Management in most simple words is the Art of getting things done. 

•  The Management process included initiation, planning, scheduling, monitoring, controlling and closing.

•  Contract Management includes all the process related to identification of the objectives, needs or wants of one party and creating and managing a contract to deliver the objectives, setting deadlines and adhering to the agreed contract terms and conditions, and thus resulting in the contract execution while ensuring customer satisfaction.

•  The Contract Management is a vocation within the business profession, which has a very broad perspective in terms of the responsibilities.

•  The Job scope of a Contracts Manager ranges from the administrative skills of managing, organizing and planning to challenges of negotiating a major contract.

•  Contract Management demand competence in such areas as contract law, administration, psychology, management and planning. Hereby the skilled individuals enable organizations to improve their buyer-seller relationships.

•  Contract management is important because how you handle your agreements end-to-end will influence the outcomes of the agreements. The process of CLM is designed to help businesses extract maximum value from contracts while remaining compliant with regulations and staying in control of relationships with third parties. 

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❖  Roles and Responsibilities of Contract Management Professionals:

Serve as a primary point of contact concerning contractual matters.

Plans, directs, co-ordinates and manages the various contracting functions, including creating, administering, modifying, closing out and terminating Contracts.

Actively collaborates with the project officer to monitor and manage the contract, contractor performance, quality and compliance with contract terms conditions.

Takes appropriate actions and applies remedies to protect the rights of the owner.

Allocates and monitors funds for various contracts.  Monitors performance and compliance of contractual terms and conditions.

❖  Contract Manager Competencies:

A successful Contract Manager should possess additional hard and soft skills to ensure managerial effectiveness.

Technical Skills: Technical skills are demonstrated by competently performing the tasks such as preparing bids, analyzing terms and conditions, analyzing supplier capabilities etc., A manager’s level of technical knowledge would influence the ability to manage the subordinates managed.

Time Management Skills: A stich in time Nine – The ability to structure the time in a hierarchical manner to manage the time effectively is a very important skill. To plan, organize and execute the expenditure of time including the plan modification.  Very important to know What to do when

Human Relations Skills: This skill focuses on the human aspects as many contract manages consider human relations to be the most important skill for the future of their jobs and careers.  Deals with the ability to work with variety of individuals with differing backgrounds.

Communication Skills: Should be capable of understanding and interpreting the contract and its conditions.  Evaluate, respond to claims, avoid / minimize claims on the contract and in the event of claims arrive at the best settlement.  Ability to speak, listen, write and conduct meetings.

Technology Skills: Technology is ever changing.  A successful manager should be updated with the latest developments and technological advancements.  Should remain updated with the changes to take up fresh challenges and thus remain in profession.

❖  Contract Life Cycle:

•  All Contracts have definite beginning and end. The phases during the contract life cycle are the following:

•  Acquisition Planning: Critical first step and includes market research, selecting the proper contract type and formulating the contract strategy.

•  Pre-award: Includes preparing requirements, evaluating proposals, conducting negotiations and completing source selection.

•  Contract Award: Awarding the contract, notifying unsuccessful vendors and addressing mistakes in the proposals.

•  Post-Award: Includes the necessary contract administration activities like executing contract modifications, addressing issues arising during the contract performance, invoicing, payment and closing out the contract.

❖  CONTRACT STAKEHOLDERS:

•  A Stakeholder is any individual or group in an organization that has an interest in the operation, use of or outcomes resulting from a Contract

•  All the parties involved in a contract has many direct or indirect stakeholders on their sides.  It is necessary to identify them to evaluate them to evaluate and monitor the impact of execution of the contract to each of the stakeholders.

•  The initiating organization has stakeholders like end-user design team, program office, finance office, contracting officer.

•  The organization receiving the contract has stakeholders like subcontractors, suppliers, insurer, creditors, etc.

•  Contract management software’s like Juros and Primevera allows multiple stakeholders to work collaboratively by: Giving them a single location to store contract, communications and a history of actions.

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❖  CLIENT/CONSULTANT CONTRACT MANAGEMENT STEPS:

COST APPRAISAL

COST PLAN

TENDER ESTIMATE

TENDER STRATEGY

PREQUALIFICATION

TENDER FLOAT

NEGOTIATION

RECOMMENDATION FOR AWARD

NOTICE TO PROCEED

FORMATION OF CONTRACT DOCUMENT

REVIEW OF LEGAL DOCUMENTS LIKE BOND AND INSURANCES

PRELIMS DISTRIBUTION AND CERTFICATION STRATEGY

BILL CERTIFICATION

CHANGE CONTROL (ADDITION AND OMMISSION)

VARIATION ORDERS

DETERMINATION / INTERPRETATION / DISPUTE

ISSUING OF TAKING OVER CERTIFICATE

REVIEW OF CLOSE OUT REPORT

PERFORMANCE CERTIFICATE

TENDER DOCUMENT REVIEW

PREPARE AND SEND TENDER QUIRIES

OBTAINING QUOTATION FOR SPECIALIZED WORKS

TENDER PRICING

BOND

QUALIFICATION / ALTERNATE PROPOSAL

NEGOTIATION

REVIEW OF LOA

OBTAINING BOND, INSURANCE AND OTHER LEGAL DOCUMENTS

SUBMISSION OF PROCUREMENT LOG / SITE / PROJECT SETUP / ORGANIZATION CHART / MOBLIZATION PLAN / SAFETY PLAN / QA & QC PLAN

AGREEMENT WITH FORMS AND FORMATS

SUCONTRACTOR FINALIZATION

SUBCONTRACTOR AGREEMENT

❖  CONTRACTORS CONTRACT MANAGEMENT STEPS:

•  SET UP BILLING PROCEDURE

•  PAYMENT APPLICATION / CERTIFICATION

•  NOTICE FOR CLAIM

•  PREPARATION OF COST ESTIMATE / PROPOSAL FOR VARIATION AND ADDITIONAL WORK

•  EXTENSION OF TIME / PROLONGATION COST

•  MONTHLY FINANCIAL UPDATE

•  REQUEST FOR TAKING OVER CERTIFICATE

•  FINAL BILL

•  DEFECT LIABILITY / RETENTION RELEASE 50%

•  REQUEST FOR PERFORMANCE CERTIFICATE

5 key inputs to proactive contract management:

1.  Contract terms and conditions: How we manage risk

2. Contract specifications: Performance & relationship (output specs/method framework)

3.  Human resources: Contract management team skills

4.  Documented processes: How we manage service delivery and contractual performance

5. Relationships & communication: How we communicate with stakeholders and manage key relationships

CHAPTER 3 FIDIC IN CONSTRUCTION MANAGEMENT

Brief Introduction to FIDIC:

❖  Its an acronym for Fédération Internationale des Ingénieurs-Conseils

❖  It English meaning is International Federation of Consulting Engineers

❖  Established in Switzerland in 1913, HQs is in Genève

❖  First contract is printed in 1957

❖  FIDIC represents Engineers and Consultants from various countries. E&C Associations from 100+ countries are FIDIC members

❖  FIDIC contract Guidelines cover almost all the major issues that needs to be addressed under a contract

❖  They have a consistent and easy to follow structure.

❖  They distribute the risks fairly amongst parties

❖  They are designed by a third party (Consultant) but not an Employer; therefore conditions are more objective and fair

❖  They can be adopted easily for many type of investments projects.

❖  FIDIC has committees formed of international members to improve its publications.

❖  Committees do continuous monitoring to improve and/or revise the existing publications (contract types, guidelines, etc.) and to introduce new books.

❖  Very well known by international Contractors and Consultants, therefore creates confidence and encourages tenderers.

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❖  SUMMARY OF FIDIC BOOKS

❖  WHITE BOOK

›  The terms of the Client Consultant Model Services agreement (The

White Book) have been prepared by FIDIC and are recommended for

general use for the purposes of:

›  Pre-investment and feasibility studies, designs and administration

of construction and project management.

›  Where proposals for such services are invited on an international basis:

They are equally adaptable for domestic agreements.

❖  NEW RED BOOK:

›  Conditions of Contract for Construction.

›  Which are recommended for building or engineering works designed by the

Employer or by his representative, the Engineer.

›  Under the usual arrangements for this type of contract, the Contractor constructs

the works in accordance with a design provided by the Employer.

›  However, the works may include some elements of Contractor-designed civil,

mechanical, electrical and/or construction works.

›  The MDB Harmonised Conditions of Contract for Construction, are

recommended for building or engineering works designed by the

Employer or by his representative, the Engineer.

›  The Conditions are for use under

licence for projects financed by the

Multilateral Development Banks.

›  Under the usual arrangements for this type of contract, the Contractor

constructs the works in accordance with a design provided by the

Employer.

›  However, the works may include some elements of Contractor designed

civil, mechanical,