Contract Management

• The procurement process.

• Various procurement models and their advantages and disadvantages.
• Quiz 1 – based on Weeks 1 to 3. Multiple choice.
04.10.2023 – 8PM for 10 minutes only
• Group exercise and discussion on Group Assignment.
 Contract Management

Identify
Package

Develop
Develop
Evaluation
Program
Criteria
Procurement
Planning
Develop
Select
Tender
Contract
Docs

Develop
Tender List
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Stages of a Tender (small tenders)

1. Procurement planning.
2. Develop enquiry documents
3. Selection of tenderers or open tender system.
4. Issue tenders.
5. Evaluation of tenders.
6. Award.

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Stages of a Tender (large tender e.g. PPPs)

1. Develop specification.
2. Consider alterative tendering options.
3. Market sounding.
4. Develop tendering rules.
5. Issue request for Expressions of Interest (EOI).
6. Evaluation of EOIs.
7. Selection of preferred tenderers.
8. Issue request for tender (RFT).
9. Evaluation of tenders.
10. Award.

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Contents of a typical tender

1. Notice to tenderers.
2. Conditions of tendering including form of tender.
3. General conditions of contract.
4. Any special conditions of contract relating to this
particular tender.
5. Drawings.
6. Technical specification.
7. Tender schedules including bill of quantities where appropriate.
8. Appendixes with other relevant information.

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Other issues

1. Head Contact provisions

2. Provisional sums
3. Nominated subcontractors.

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Head Contract Provisions.
It is important that all provisions of the main contract are carefully considered to determine which
specific terms should be reflected in the sub-contract by way of a back-to-back arrangement. Provisions
with respect to the head contract to consider include:
• Completion by a specified date should be on or before that in the main contract.
• The definition of completion should generally be the same as in the main contract.
• Quality and standards, defects, indemnities, etc. should generally be the same.
• Extensions of time provisions should generally be the same as under the main contract,
• Entitlements to variations should generally be the same as in the main contract.
• Reporting and submission requirements.
• Suspension and termination.
• Means and method of communications.
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Head Contract Provisions. (cont.)
• Dispute resolution.
• An agreement to cooperate and assist each other to resolve the main contract dispute.
• An agreement that the sub-contractor agrees to stay its dispute with 4th3ehead contractor until
the resolution of the head contractor’s dispute.
If you want to incorporate the head contract terms by reference (as opposed to putting them in
full) make sure that the sub-contractor:
• Acknowledges it has received (or has full access to) a copy of the main contract and is aware of,
and will carry out the main contractor’s obligations which are contained in the sub-contract.
• Expressly states that they will not do anything to prevent, or interfere with, the main
contractor’s obligations under the main contract.

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Provisional sums, Nominated subcontractors.

A provisional sum: is an allowance, usually estimated by the cost consultant, that is inserted into
tender documents for a specific element of the works that is not yet defined in enough detail for
tenderers to price. Any difference between the provisional sum listed in the contract and the actual
cost is paid by the client. This, in effect, changes the contract price.

A nominated subcontractor: is a contractor who is specified by a main project contractor or the

principal to carry out a portion of a particular contract.

As the subcontractor has no choice in the selection of the nominated sub-contractor, they cannot
usually be held responsible for the failure of the nominated sub-contractor to perform.

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Major procurement models

1. Construction only.
2. Design and construct (D & C).
3. Design, construct, maintain and operate (DCMO).
4. Rates and Bill of Quantities (BoQ).
5. Engineer, procure(EPCM).
6. Managing contractor.
7. Direct manage.
8. Alliance.
9. Public, private partnerships (PPP.

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Construction Only

Principal

Consultant Superintendent

Head Contractor

Subcontractor Subcontractor

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Construction only contracts
Guidelines for use. Advantages . Disadvantages
• Timeframes are sufficient to complete • The project owner has full control • Price certainty relies on the accuracy
the design and allow for a tender of the project, including community and completeness of the project
period for construction works. and other stakeholder interfaces. owner's documentation and design.
• Design is settled and the scope well- • The design and construction stages Any errors will effect the final cost .
defined. can proceed at times most • Fast tracking is very difficult.
• The project owner is willing to convenient to the project. • A long lead-time may be required to
retain all of the design risk. • The project owner can ensure that progress the design and
• Site conditions are well all design issues are resolved, and documentation in advance of
known. that design innovation is considered construction.
• There is likely to be a large pool of (where appropriate). • Separate responsibility for design
tenderers and strong competition. and construction creates an
• The project owner wishes to retain increased interface risk.
overall control of the project during
construction.
• There is need for a high degree of
cost certainty at the time of award.
 Contract Management
Design and Construct Only

Principal

Superintendent

Head Contractor

Design (Subcontract or
Subcontractor Subcontractor
in-house)
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Design and Construct (D&C) contracts
Guidelines for use. Advantages . Disadvantages
• The project requirements are • Construction can commence shortly • A long tender evaluation period is
well-defined at the time of going after contract award, in anticipation required.
to tender of all detailed design packages • The cost of tendering is
• Desire to transfer design and being finalised. generally higher.
construction risk. • Possible to fast track. • The designer may minimise
• There is high potential for construction costs and adversely
innovation in the preliminary effect operating costs.
design, resulting from the • Any uncertainty in the project
contractor's input into owner's requirements may lead to
constructability and flexibility in claims and disputes.
identifying optimum materials and • A higher price may be paid for the
construction methodologies. project due to uncertainties at the
• Eliminates design -construction time of pricing the tender and the
issues.. level of risk transference to the
• Lump sum can give high price contractor.
certainty.
• The contractor generally
warrants his design.
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Design, construct, maintain , operate.(DCMO )contracts
Guidelines for use. Advantages . Disadvantages
• As per D & C contracts. • As per D & C contracts. • Costs are locked in for a
• Additionally the specification has • Whole of life potentially longer period of time.
been developed to include optimized. • Contractor may let asset
operating and maintenance deteriorate prior to hand over.
requirements. • Difficulties in estimating
operating costs over long periods
of time may result in the
contractor applying a large
contingency.
• Disputes can occur if there is a
significant change in the
operating environment (e.g.
traffic volume increases.)

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Rates contracts.
Note: Bill of Quantities (BoQ) contracts are similar
Guidelines for use. Advantages . Disadvantages
• The scope is not well defined . • Potentially lower cost. • Cost control can be challenging..
• Owner wants considerable • Owner has good control over • Often a max target cost model is
interaction which may result in processes. used which if overrun can result
rework (e.g. at the design • High flexibility can be achieved. in disputes.
phase) • Owner’s team input can be very • Dishonest contractor can “pad”
• The scope is well known but the high ensuring the owner gets time involvement.
work area may present specific what they want. • Overruns are frequent.
problems or require a flexible • Can fast track or stage the
approach e.g. modification to an work.
existing working site. • Can promote a team approach.
• Several alternatives need to be • Can specify use of certain
considered and optimised e.g. suppliers.
feasibility stage.

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Design and Construct Only

Principal

EPCM Contractor

Design (Subcontract or
Subcontractor Subcontractor
in-house)

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Engineering, procurement and construction management (EPCM) contracts

Guidelines for use. Advantages . Disadvantages

• The owner wants significant • Potentially lower cost. • Relies on the skill and
input into the design phase, • Owner has good control over experience of the EPCM
specifications and supplier processes. contractor.
selection. • Relatively easy to amend scope • Potential to have a large
• Owner has good understanding and specification as the project number of contracts with
of their needs but lacks the develops resultant interface problems.
manpower to perform the work. • There is a high degree of price • EPCM contractor has little or no
• Alternatively the owner feels certainty for both the design responsibility for time and cost
the he does not have the and construction works when a overruns.
experience to manage the lump sum arrangement is used.
contract himself. • Can fast track or stage the
work.
• Can promote a team approach.
• Can specify use of certain
suppliers

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Managing contractor

Guidelines for use. Advantages . Disadvantages

• Similar to EPCM. • As per EPCM contracts. • As per EPCM.
• Owner has good understanding of • There is a high potential for • It is sometimes difficult for project
their needs but lacks the efficiencies through owners to set accurate cost targets
manpower or experience to constructability reviews of the with limited design details, where
perform the work. design. such targets are required early on
• Needs to deal with a condensed • Lowest risk for contractor often in the delivery process.
timeframe. reflected in their fee. • Often relies on management
• Willing to live with a target cost contractor to develop TCE.
estimate (TCE). • If TCE not achieved disputes can
arise.

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Direct management

Guidelines for use. Advantages . Disadvantages

• There is a need for the project • Use of the model may result in • The project owner retains all of
owner to control all aspects of the efficient outcomes for small value the delivery and interface risks.
project. works where full-blown • There is a need for a detailed work
• Client has an experienced team procurement and contracting is not program and schedule to manage
that understands the issues economical. interfaces. It may be difficult to find
involved in the particular • The project owner has the ability to skilled project managers with
project. control all aspects of the project construction expertise to manage
• Good model for minor works and directly manage any non- the works.
contracts and emergency works. performance. • The level of oversight can be
• Useful where there are uncertain or • The flexibility of the model helps resource-intensive.
complex interfaces and where to manage any difficult • If the owner does not have a good
flexibility on scheduling and coordination or interface issues. estimating division costs received
delivery are required. • The model helps develop and/or at tender time may result in a
retain the skills of the project budget blowout.
owner's personnel.
 Alliance contracts
Guidelines for use. Advantages . Disadvantages.

• The project scope and risks are highly uncertain. • There is better risk sharing than in other • While risks are shared, it is likely that
• There are significant time constraints. and models. the project owner will be exposed to
technical challenges. • The likelihood of improved efficiency and uncapped open-ended risk, whereas the
• There are complex external factors e.g. political innovation is increased. risk to the contractors is generally
and stakeholder-related. • There is a high degree of project owner capped.
• There is a need for flexibility in scheduling and involvement in project delivery and supports a • The 'no blame, no disputes' agreement
programming etc. fully integrated project team . limits the capacity for litigation if the
• A collective approach is considered advantageous • There is maximum flexibility across all aspects of relationship turns bad.
to the management of the project ‘s risks and delivery. • Requiring decisions by unanimous
challenges. • Participants can develop a detailed agreement of the ALT can make
• There is a desire for knowledge sharing and understanding of pricing and costs due to the decisions difficult.
transfer between the parties. transparent, collective total outturn cost(TOC) • Resourcing of ALTs and AMTs can be a
• There is capacity to fully resource the alliance development and contract pricing process. difficult proposition for some project
leadership team (ALT) and alliance management • There is a historical trend of good achievement owners.
team (AMT). against established TOCs. • It may also be difficult to source
• High level of trust exists permitting a 'no blame, • The participants commit to looking for 'best for personnel with the right personal
no disputes' philosophy. project' solutions. attributes and preparedness to work in
• The model supports a high level of knowledge an alliance structure.
transfer.
PPP are generally Availability payments
paid for by the user can be regular or
(e.g. toll roads) or variable based on the
receive an availability Contract Management level of use (e.g.
payment based on the PPP structure shadow tolls).
level of service from
the owner.
Eventual owner
(Government body)
Equity (often large superfunds
Company 1
but can be individuals)

PPP Co

Company 2 Debt (either by bank debt or

project specific bonds)
Contracts for work

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PPP contracts
Guidelines for use. Advantages . Disadvantages

• Full risk transfer is desired. • Full integration of design, construction, • Success relies on a well-defined functional
• Whole-of-life costing optimisation is financing, operational, maintenance and and service specification.
important. refurbishment responsibilities. • Contract is very complex.
• A good performance specification including • Greater transfer of risk to the private sector.. • Where there are multiple concept designs
service requirements has been developed. • Transfer of lifecycle cost risk encourages being developed simultaneously during the
• Private enterprise is prepared to take the risk whole of life optimisation. bid phase, this can require significant owner
transfer offered. • Overall design and fit-for-purpose risk lies resources.
with the private partner. • The ability to make a variation needs to be
• Less demand on owner resources over the addressed in the contract.
long term. • Potential for high tendering costs.
• PPP Co. borrows funds thus protecting • Tender period is protracted and bid
owner’s debt level. evaluation is complex requiring specialist
• Stakeholder interaction is usually with PPP co. engineering and financial consultants.
which gives government a shield against bad • Need to ensure entities forming PPP co
publicity. guarantee its performance
• Loss of control of stakeholder and hence
public management.
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Contract Type Spec Cost certainty Risk transfer Involvement Finance Innovation
in design
PPP/DCMO Well High Complete Low PPP=PPP Co Can be high
developed DCMO=Owner
EPCM or Can be Medium Medium High Owner Can be high
Managing developed
contractor with design
D&C Well High High Medium to Owner Low
developed Low
Design Well Low Low High Owner High
followed by developed
Construction
Self Managed Can be low at Low Low High Owner Can be high
start
Alliance Can be low Low Low Very High Owner or joint Very high
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Further Reading
Loosemore, M. & Thomas E. 2004. Essentials of construction project management, UNSW Press, Ch. 7.
Project Management Institute, Incorporated 2013,A Guide to the Project Management Body of
Knowledge (PMBOK® Guide), Chapter12.
Australian Procurement and Construction Council, Austroads 2014,Building and Construction
Procurement Guide Principles and Options