INTRODUCTION TO

CONTRACT
MANAGEMENT

Revision May 2018

 Module 3

 Concerning contract management,

complying to PFMA, other key
legislation and Eskom governance
requirements
A Contract Manager’s Obligations

Contractual Governance
The Law
obligations obligations

Defined roles and Extent of duties and

responsibilities, in authority in Delegation
contract, of Employer Consent Form and
(and, if applicable, other appointment
Project Manager, Appointment/s in writing defining letters.
Employer’s Agent designations, roles, responsibilities,
etc.). delegation and/or authority etc.

Contracts and Compliance to

interfaces with other Accountable Legislation, Policies,
contractors, Process Control
Person
consultants, suppliers Manuals, Procedures,
and Employer’s other Standards, and
resources System requirements.

Competent Most
Value Oversight Effective
and skilled appropriate
added and contract
contract contracting
contracts assurance administration
team strategies
 Foundation of Eskom’s Governance Framework

Contract management in Eskom is

significantly affected by decisions
of government departments,
particularly those overseeing:

 Public Enterprises
 National Treasury
 Public Works
 Labour
 Environmental Affairs
 Energy Delivery!
 Mining

Note additional authority of:

• Construction Industry Development
Board (CIDB)
• Councils for the professions,
especially those supporting the Built
Environment (engineering, quantity
surveying, project & construction
OHSAct & Environmental Legislation
Construction Regulations
management etc.)
• Competition Commission
which also affects Eskom.
 Main effect of Public Finance and Management Act

“The object of this Act is to secure transparency, accountability,

and sound management of the revenue, expenditure, assets and
liabilities of the institutions to which this Act applies.” Clause 2
“prevent unauthorised,
“properly irregular and fruitless and ”fair, equitable,
evaluating all wasteful expenditure and transparent,
Investment Procurement competitive
major capital losses resulting from
projects prior criminal conduct” 38(c)(ii) and cost
effective”
to a final Projects Contracts 38(a)(iii)
decision”
38(a)(iv)

“must settle all contractual

obligations and pay all money
owing, including intergovernmental
claims, within the prescribed or
agreed period” 38(f)
Interdependency of Projects and Contracts

Investment Procurement

Projects Contracts

One project may depend on a One contract may support a

number of contracts. number of projects.

Task Order for Project A under Bulk/Framework Contract VI

Contract II for Project A

A B C D I II III IV
Contract I for Project A
Contract III for Project D
Task Order for Project C under Bulk/Framework Contract VI
Task Order for Project B under Bulk/Framework Contract VI

It can get complicated!!!!

 Contract Management in project life cycles
Project Project
Eskom Project Life Cycle Model
Start End
Pre- Execution
Phase Concept Definition Finalization
Project Post
Pre- Business Planning Contracting & Commissioning Close- Project
Stage Planning Feasibility Construction Evaluate
Feasibility Plan & Design Procurement & Handover Out

1. Informed of 2. Assist during the 3. Contract Eastablishment & Contract Administration 4. Close Out &
projects’ development of Handover
Contract Managemet level of Involvement

opportunity under contracting and

the screening procurement
radar strategies

Oversight and Assurance

Contract Management Life Cycle

 High-level View of Procurement Process/es

Sourcing Strategy
Business Investment Contracting
Need Budget
Approval Strategy

Pre-qualify Scope (& Works, Services

Create Purchase
Contractors/ Consultants/ or Goods Information)
Request
Suppliers (Team) finalized per package

Collate, populate, review

SAP & finalise contract
Workflow Sourcing documentation
(cross functional team)

Mandate Mandate
Negotiate
Feedback Approval

Tender
Contract Award Reports Cross functional Tendering
Evaluation
Approval checking Meeting (Team)

Contract Management Project Manager Leads

Buyer Leads
NB NB NB NB: Extract from the Procurement and
Supply Chain Management Procedure 32-1034
Contract terms versus authority to manage a contract

 A contract custodian should at all times manage the contract

in terms of the contract itself.
The content of the contract (e.g. clauses and works information)
reflects what the parties have agreed to and contains the rights
and obligations of the parties and how to deal with things such
as change (the unanticipated realities).

In addition,
 To avoid irregular expenditure in terms of the PFMA (and being
disciplined for it), a contract custodian must exercise his/her
delegated authority at all times within its parameters.
That is, as reflected in the approved procurement submission
documents, which should include the Delegation Consent Form
(DCF) even if no contingency is provided in it, and as reflected
in SAP.
Successful Delivery of Objectives AND Compliance

A contract custodian’s regular forecasting / projections

(especially following immediate assessment of each
contingency / event’s impact) should provide the information
required to avoid disciplinary sanctions being imposed for non-
compliance to delegated authority or contractual terms.
Thus, a contract custodian should:
 timeously seek expansion of delegated authority, when it
is needed, and
 ensure the supplier, contractor or consultant is paid when
amounts are due, thus avoiding (fruitless and wasteful)
additional payments by Eskom of interest, for claims,
legal costs,
Failure to do this would have to be reported as infringements of
the PFMA.
 Delegation Consent Form (DCF) and Contingency

NB: DCF is issued to a contract custodian by an Eskom authority (usually Procurement and Tender
Committees (PTC)) and usually contains limits of additional cost and time which can be used
for managing contingencies arising under the contract. An Investment Committee can similarly
approve a project’s parameters to include the overall contingency for the project.
IDC*
Overheads

Project Contingency
Cost

*IDC – Interest During Construction time

Delegated Consent Form (DCF) elements

Approved value for Approved contingency values

contract control as per DCF
Monetary Value

Monetary Value
Monetary contingency %
R1
Time contingency %
R2

t Time Time tx
Change to be approved by Change to be approved by
Applicable Authorization Level Applicable Authorization Level

Change = ‘modification’
Can be any time during
contract duration
Result of overlay
R1 + R2 At any time during the approved
Monetary Value

periods, a change to any of the values

R1 reflected in the top graphs needs to be
approved at the correct Eskom level of
approval authority. The two sets of
values operate independently from
each other as reflected in SAP.
Time t t+x
Project “Re-Projections”
Part of managing earned value and staying within delegated authority
Regular feedback Valid
to and/or compensation
approvals from events paid
Eskom investment (plus additional project
and procurement costs due to Contractor
authorities default which cannot be
(e.g. PTC, RIC, TOC) recouped from Contractor
•
Awareness or insurance, minus delay
damages etc.)
• Early warning
Cumulative Project Cost

• Risk Register updated

• Risk reduction meeting
• Risk Terminated/Treated/Transferred/Tolerated
• Impact avoided or reduced
• Is it a compensation event?
• What is the impact of the compensation event?
• Assessment of quantum quoted (time, cost)?
Valid
compensation
event claims
paid

Time
Some enablers include: Contractor’s programme, regular site meetings, Risk Register updates, early warnings, assessments for payment etc.
Authority for Goods, Services or Works Information
Changes and Variations
Where established, claims, variations and compensation event
committees / forums are to assist contract custodian in deliberations.
Always re-project / forecast cost , time and scope following an event
and get approval (e.g. a modified DCF) where required!
Usually NO revision of delegated authority (as reflected in SAP)
required to effect a payment if:
• There would be NO increase required to the approved/SAP cost
and time limits AND total accumulated compensation events/claims
do not, or are not likely to, exceed DCF contingency limits; AND
• Any change in Works, Services or Goods Information (e.g. drawing
corrected, minor change in a specification etc.) or Pricing Data (e.g.
additional line item in bill of quantities or changes to quantities)
would not equate to a change in Scope as indicated in the
Procurement Submission Documents previously approved by the
Eskom authority (PTC).
If in doubt, NOTIFY Procurement (e.g. relevant buyer) to confirm and
provide feedback to authority (PTC).
Controlled and Authorized Scope Changes

Note: Compliance with National Treasury Requirements Contract Management PG8 Approval
(SIPDM) (240-125481734) – see particularly subsections (ii) and (iv) provided.
Proposed, desired or
considered changes
in scope (e.g. Works
Information) Approved by Eskom
Delegated Approval Implement
Authority (e.g. Procurement changes
and Tender Committee)
Likely
increase needed in Yes
DCF contingency
limits (cost and/or Supported by Claims, Variations
time)? & Compensation Events
Yes Committee / Forum No
No
Changes in Scope Does a Claims,
Variations &
(increase or decrease Yes Compensation Events
from latest approved
procurement Committee / Forum
submissions)? exist to assist in
deliberations?
Other
compensation No
events
Contract & Payment Management process flow in SAP
(for works, with services & goods slightly different)
Procurement process/es

Approval Contract Purchase

Purchase
Authority’s Established Order Loaded
Request
Approval (#46..) (#45..)
matching
vendor

Works / Services Quality & Amount due

provided quantity verified assessed

Service Entry
Payment Purchase Order SAP Release
loaded on SAP
Certified SAP data aligned (#500...)
(#108...)

Payment Tax compliant

Payment
Certificate sent Invoice
(#260..)
to Contractor Received
EHPUM and Process Levels

EHPUM (level 0)

o Service the Operations (level 1)

 Deliver Projects (level 2)

 Contracts Management (level 3)

 Establish Contract Environment (level 4)

 Execute Contracts (level 4)
 Close out Contracts (level 4)
Eskom Contract Management
Process Control Manual/s (PCMs)
Level 1: Service the Operations
Level 2: Deliver Projects

Level 3: Contracts Management

 Managing Contract Documentation
and Records (1)
Procurement & Tender Contract/s
• Procurement and contracting strategy • All pages of document making up contract between
reports Employer/Purchaser and Contractor/Supplier
• Confirmed budget/investment approval including:
• Squad check meeting minutes • Cover page and indices
• Tender documents (e.g. conditions of • Offer and acceptance pages
tender) • Contract Data provided by the
• Clarification meeting minutes Employer/Purchaser (including Z clauses,
• Tender ‘returnables’ received general and/or special conditions)
• Procurement and tender committee • Contract Data provided by the
submissions and approvals Contractor/Consultant/Supplier
• Letters of appointment, authority • Pricing Data (e.g. bill of quantities, activity
and delegation (including for schedule etc.)
contingencies) • Works Information (e.g. indices dimensions,
• Contract negotiations and any related routes, drawings with keys & revision numbers,
minutes and correspondence technical, SHEQ and other specifications etc.)
• Final pricing data and terms of the • Site Information (e.g. maps, ground conditions,
successful tenderer municipal services, location of heritage sites,
• Any early works agreements protected trees etc.)
• Task/purchase orders • Applicable conditions of contract
• Other critical procurement and related • Other contracts related to main contract’s
system records works/services/goods e.g. with material Suppliers,
design Consultants, commissioning Contractor and
Subcontractors
Managing Contract Documentation
and Records (2)

Communication Meetings
• Correspondence in all forms, including
• Agendas, attendance registers and
memos, notes, letters, and emails
minutes of:
• All communication which can be read, copied
• Site meetings
and recorded, including:
• Safety, health, environmental and
• Instructions
quality specific meetings
• Certificates
• Progress review meetings
• Submissions
• Risk reduction meetings
• Proposals
• Integration/coordination meetings
• Records
and any other meetings related to the
• Acceptances
works/services/goods.
• Notifications
• Replies
A notification required in terms of a contract
must be communicated distinctly and clearly e.g.
usually separate from other communication.
• Also, if applicable,
• Requests (e.g. for further Information)
• Approvals
• Determinations
• Notices
Managing Contract Documentation
and Records (3)
Scope and design Quality and completion
• Documents as reflected in the contract’s • Test and inspection results
Works Information (or subsequently • Laboratory testing reports
provided), including: • Non-compliance reports
• architectural or engineering drawings, • Instructions related to defects
• standards. specifications etc. • Conditional/ unconditional notices of substantial
• Clarifications of requirements completion
• Updated ‘as-built’ drawings • Notice of practical completion
• Testing & commissioning records
• Defects Certificate
Site • Certificates of completion (e.g. substantial, final etc.)
• Daily reports, logs, access registers and

•
diaries
Contractor payroll records and time
Time and schedule
• Contract milestone schedules
cards/ labour dockets
• Notices to proceed
• Contractor cost reports
• Updated construction schedules
• Construction progress photos
• Accepted Programmes reflecting:
• Productivity reports
• Key Dates,
• Weather measurements
• effective dates,
• Accident reports
• Sectional Completion Dates etc.
• Material deliveries/receipts
• Baseline versus actual
• Itemised machinery / equipment
• Contractor Progress Reports
charged for works
• Sub-contractor progress reports
Managing Contract Documentation
and Records (4)

Financial and payment

• Contract rates/prices in:
• Pricing Data (e.g. bill of quantities, activity schedule )
• Contract Data provided by Contractor (e.g. fee percentages)
• Cash-flow projections
• Qualitative and quantitative confirmations/verifications
Risk
• Performance bonds
• Progressively updated Bill of Quantities, Activity Schedule or
• Parent company
Defined Cost tables
guarantees
• Payment certificates/documents used to certify payment
• Risk registers
• Payment schedules
• Insurance claims
• Proof of payments/remittances
• Tables of relevant indices for price adjustment
• Exchange rates applied where multiple currencies involved
• Assessments of amounts due, including application of:
• Advance payment and repayment thereof
• Retention
• Price adjustments for inflation
• Bonuses
• Incentives
• Damages (delay, low performance)
• Supporting documentation related to compensation event/claim
e.g. material invoices
Managing Contract Documentation
and Records (5)
Change, claims and compensation events
With all substantiating/supporting information and documentation:
• Works Information changes / Variations
• Value engineering proposals/ Contractor change requests
• Extension of time notices
• Notices of delay
• Acceleration notices
• Quotes
• Critical path analysis on last Accepted Programme
• Assessments of impact on Prices, Completion Date and Key Dates
• Changes to Prices, Completion Date and Key Dates
NB: Where late Completion is anticipated or has occurred due to Contractor’s own fault (since this effects
matters such as the application of delay damages), changes should not be made to the NEC termed
‘Completion Date’ (which is different to similarly termed DCF and SAP dates, since these merely govern
and control authority and related payments, respectively, and not the relationship with the Contractor).

Disputes
• Adjudicator’s contract
• Submissions sent to Adjudicator or Dispute Adjudicating Board (DAB) from both parties
• Adjudicator/DAB’s decision/s
• Logistical arrangements for arbitration
• Submissions of both parties to court/tribunal/arbitrator/s
• Tribunal/arbitrator/s’s award/s or Court order/s
To ensure compliance, remember:

• Good governance should be your pledge.

• Appointments define limits of authority.

• Role clarity eliminates gaps in controls.

• Contract content (e.g. clauses, works information etc.)

provides the instruction manual.

• Document management, record keeping, is your

protection.
 Evaluations and
Assessments
Insert image here
Learner Evaluation of Course

Please tell us about your experience regarding this


workshop


 Assessments
Instructions on completion of your assessment:
• This is an individual assessment.
• Therefore, soliciting assistance from others during the
assessment is prohibited.
• Learners are allowed to refer to all available study material
during the assessment.
• Once you have completed the assessment, hand in your
answers to your facilitator.
The learner assessments test the level and extent of
understanding created by the training sessions.
 Please complete these quietly.
 Should you require clarity, please put up your hand and the
facilitator will attend to you.
Good Luck!
Acknowledgement

• Aubrey Kutama • Kennedy Subramoney

• Donovan Kumkaran • Maryeen Maynard

• Frans Marais • Murray Selkirk

• Gerhard McNamara • Pierre Esterhuyzen

• Glen Jordan • Pravan Sookdeo

• Grietjie Doubell • Rob Doherty

• Ian Howard • Rod Speedy

• Jacob Masoeu • Tim Chetty

• Julie Kabasela-Nkombua • Wim Bouwer

Sources and References
Sources include and adaptions from:
• Eskom. Process Control Manual (PCM) for Contracts Management.
• B.Mitchell and B.Trebes, NEC Managing Reality, Books 1,2, 3, 4 and 5 , 2nd edition, Thomas Telford Ltd,
2012
• Thomas Telford, The New Engineering and Construction Contract, (various conditions of contract and
editions).
• B.Weddell, Choosing the Right NEC Contract, Thomas Telford Ltd, 2006
• H.Kerzner. 1998. Project management; a systems approach to planning, scheduling and contracting.
Sixth edition. John Wiley and Sons, Inc.,
• C. von Branconi, C. H. Loch. 2004. Contracting for major projects: eight business levers for top
management.
• A. Stephenson. 2000. International Journal of Project Management. 22, 119-130.
• S. Agnitsch, S. Cooke, T. Solberg. 2001. Alliance contracting, partnering, co-operative contracting; risk
avoidance or risk creation.
• EPCM – The misunderstood contract.
• Gregory Garrett. World Class Contracting.
• Hill International. Training Manuals.
• Engineering Contract Strategies. Training Manuals.
• Hutchinson D., et Al, The Law of Contract In South Africa, 2nd ed., Oxford University Press, 2012.
• Mc Innis, A. The New Engineering Contract: Legal Commentary, 2001.
• Eggleston, B. The NEC 3 Engineering and Construction Contract, A Commentary, 2nd Edition, 2010.
• Lewendon, R. S. The Use of NEC: Engineering and Construction Contract, 2000.
• Developing and Managing Contracts, Getting right outcome, paying the right price, OGAO, 2007.
• CIDB, Choosing the most appropriate form of contract, 2005.
• NEC3 suite of conditions of contract.
• FIDIC suite of conditions of contract.
Thank you