Module 3 Contract and Procurement management

Procurement – procurement types, planning, stages – procurement execution –

sustainable procurement management
Construction contract –formation, types, essential elements, contract law – tendering
process-contract award – Documentation – contractor and sub-contractor management
–claims – disputes- compensation – breach of contract – project completion and project
closure

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=> Procurement refers to the process of sourcing, purchasing, and obtaining the
necessary materials, equipment, and services required for a construction project.

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This involves identifying suppliers, negotiating contracts, managing orders, ensuring
timely delivery, and coordinating logistics to keep the project on schedule and within
budget. IL
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Procurement in construction is critical because it affects project timelines, costs, and
quality. It often includes:
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● Materials Procurement: Buying essential items like concrete, steel, electrical

components, and finishes.
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● Subcontractor Procurement: Selecting subcontractors for specialized work, like

plumbing, electrical, or carpentry.
● Equipment Procurement: Securing machinery or tools needed on-site.
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Efficient procurement ensures the right resources are available when needed, helping
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minimize delays and streamline project workflows.

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=> Procurement types :

Traditional Procurement
(Design-Bid-Build)
The design and construction processes are separated. The client hires a designer for
the project design, then selects a contractor through a bidding process to execute the
construction.
Advantages: Clear division between design and construction, competitive bidding can
lead to cost savings.
Disadvantages: Longer project timeline due to separate design and construction
phases.

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Construction Management

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The client hires a construction manager to oversee and coordinate different contractors
and trades. This method is often used for complex projects.

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Advantages: Provides professional oversight, flexible for changes, can allow for a
phased or faster schedule.

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Disadvantages: Requires strong project management skills, potentially higher costs.
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Design and Build(D&B)
The client contracts a single entity to handle both the design and construction of the
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project. This team typically consists of architects, engineers, and construction

professionals working together from the start.
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Advantages: Faster project delivery, single point of accountability, better collaboration.

Disadvantages: Less client control over design, potentially higher costs due to bundled
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services.
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Joint Venture or Partnering

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The barriers between parties often could result in major problems in the construction
contract. In order to overcome barriers, different parties must establish a working
environment based on trust, mutual objectives, teamwork, and sharing risks and
rewards.
The success of such types of procurement largely depends on a memorandum of
understanding between the parties involved. Identifying responsibilities of each party is
slightly difficult in the joint venture procurement system.

Turnkey Procurement
In turnkey procurement, a single contractor or developer is responsible for the entire
project, from design to construction and final delivery.

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The client only needs to provide the project requirements, and the contractor takes care

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of the rest. Turnkey procurement offers several advantages to clients. It simplifies the
process by eliminating the need for multiple contractors and streamlines project
management. Additionally, it reduces the client’s workload and allows them to focus on

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other aspects of their business while the contractor handles the project.

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=> Procurement planning is the process of identifying and defining the materials,
services, and resources needed for a project or organization. It involves outlining what
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needs to be procured, when it will be required, where to source it, and how much it will
cost. The aim is to ensure that the necessary items are available at the right time, in the
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correct quantities, and within budget to keep the project or operation running smoothly.

Key elements of procurement planning include:

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1. Requirements Analysis: Determining what is needed and in what quantities.

2. Supplier Selection: Identifying reliable vendors or suppliers.
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3. Budgeting: Estimating costs and allocating funds.

4. Scheduling: Planning procurement timelines to match project phases.
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5. Risk Management: Identifying and mitigating procurement-related risks.

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By carefully planning procurement, organizations can avoid delays, reduce costs, and
improve overall efficiency.
=> Procurement Stages in the construction industry typically involves several key
stages to ensure that materials, services, and subcontractors are secured efficiently and
cost-effectively. Here’s an overview of the main stages:

1. Planning and Specification

● Define the project requirements, including materials, services, and technical

specifications.

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● Create a procurement plan that aligns with the project timeline and budget.

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● Identify constraints, such as lead times for materials, potential labor shortages,
and any specific regulatory or quality requirements.

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2. Sourcing

project’s needs. IL
● Research and identify potential suppliers and subcontractors based on the

● Prequalify vendors to ensure they meet standards for quality, capacity, reliability,
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and compliance.
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● Issue a Request for Proposal (RFP), Request for Quote (RFQ), or Request for
Information (RFI) to gather detailed bids and proposals.
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3. Evaluation and Selection

● Review and compare supplier bids or proposals, considering price, quality, lead
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times, and supplier reputation.

● Perform technical and commercial evaluations to assess the best fit for the
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project.
● Negotiate terms and conditions, including pricing, delivery schedules, and
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payment terms.

4. Contracting

● Finalize and sign contracts with selected suppliers or subcontractors.

 ● Define clear terms on quality standards, penalties for non-compliance, delivery
schedules, and insurance requirements.
● Review all contractual obligations and ensure alignment with project goals and
timelines.

5. Order Management and Expediting

● Place orders with selected suppliers and confirm delivery schedules.

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● Monitor order progress, manage any delays, and expedite urgent requirements

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as needed.
● Maintain communication with suppliers to ensure adherence to quality and
schedule.

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6. Inspection and Quality Control

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● Inspect materials and services upon delivery to ensure they meet project
specifications and quality standards.
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● Address any issues with defective or non-compliant materials immediately with
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suppliers.
● Conduct ongoing quality assessments if needed for long-term services or phased
deliveries.
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7. Receiving and Documentation

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● Record and verify the receipt of goods or services, including quantities and
conditions.
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● Update inventory records and manage storage, if required, for construction site
logistics.
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● Document all transactions, quality checks, and supplier interactions for future
reference and accountability.

8. Payment and Supplier Evaluation

 ● Process payments based on agreed terms, verifying completion and compliance
before releasing funds.
● Evaluate supplier performance in terms of quality, timeliness, and overall
satisfaction.
● Maintain records of evaluations for future projects and supplier selection.

This structured approach helps in securing reliable supplies, managing costs, and

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maintaining project timelines while ensuring quality and compliance.

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=> Construction industry, sustainable procurement and execution focus on
sourcing materials and services that minimize environmental impact, ensure ethical
labor practices, and promote long-term project efficiency. Here's how sustainable

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management can be implemented in construction procurement and execution:

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1. Green Material Sourcing: Choose materials that are sustainably sourced, have
low environmental impact, or are recycled. For instance, using reclaimed wood,
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recycled steel, or low-carbon concrete helps reduce resource consumption and
waste.
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2. Life Cycle Cost Analysis: Assess not only the upfront cost of materials but also
the long-term operational, maintenance, and disposal costs. This approach
ensures materials and technologies are chosen based on their overall impact, not
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just initial expense.

3. Local Sourcing and Logistics: Procuring materials from local vendors reduces
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transportation emissions, supports the local economy, and can lower overall
project costs. Additionally, localized sourcing helps in managing supply chain
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risks related to distance, like delays and fuel costs.

4. Supplier Collaboration and Evaluation: Partner with vendors committed to
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sustainable practices. Implement rigorous evaluation criteria for suppliers to

ensure their environmental, social, and governance (ESG) standards align with
project goals.
 5. Waste Management and Reduction: Aim for minimal material waste through
accurate forecasting and efficient resource use. Recycling on-site materials or
repurposing waste can help reduce the project's landfill contributions.
6. Energy-Efficient Execution: Integrate energy-efficient machinery and technology
on-site, like electric equipment or renewable energy sources. Reducing fossil fuel
consumption on-site is a significant contributor to sustainable execution.
7. Compliance with Green Building Standards: Adhere to green building

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certifications (such as LEED, BREEAM, or IGBC). These certifications provide

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guidelines for sustainable construction practices, energy efficiency, and
environmental responsibility.
8. Training and Awareness for Teams: Educate workers and teams about

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sustainable practices. This involves ensuring everyone on-site is aware of waste
management, energy-saving measures, and the proper handling of eco-friendly
materials.
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By embedding these practices in procurement and execution, construction firms can
minimize their environmental footprint, reduce costs, and contribute positively to the
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communities they work within.

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Contract:
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A construction contract is a legally binding agreement between two or more parties.

typically a project owner and a contractor outlining the terms and conditions for the
execution of a construction project. It serves as the foundation for defining the roles,
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responsibilities, and obligations of the parties involved.

Key Features of a Construction Contract

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1. Scope of Work: Specifies the tasks, deliverables, and standards required for the
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project.
2. Timeframe: Defines start and completion dates, including milestones.
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3. Payment Terms: Details the payment structure (e.g., lump sum, progress
payments).
4. Risk Allocation: Allocates responsibilities for unforeseen events or delays.
5. Change Orders: Establishes processes for modifying the scope or terms during
the project.
 6. Dispute Resolution: Includes mechanisms like mediation or arbitration to handle
disagreements.

Purpose of a Construction Contract

● To ensure clarity on project requirements and expectations.

● To protect the interests of all parties.
● To provide a legal basis for resolving disputes or claims.

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● To manage risks and allocate responsibilities effectively.

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Construction contract –formation The formation of a construction contract involves
establishing a legally binding agreement between parties (such as an owner and a

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contractor) to execute a construction project. The process includes the following steps:

price, and conditions. IL

1. Offer: One party (e.g., the contractor) submits a proposal outlining the work,

2. Acceptance: The other party (e.g., the project owner) agrees to the terms
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without significant modifications.
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3. Consideration: Both parties exchange something of value, such as payment for

services.
4. Intention: There must be a clear intent to enter into a legally binding contract.
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5. Legality: The agreement must comply with the law and pertain to lawful
activities.
6. Capacity: Both parties must be legally capable of entering a contract (e.g., not
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minors or mentally incapacitated).

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Essential Elements of a Construction Contract

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1. Offer and Acceptance: A clear agreement on terms between the parties.

2. Consideration: Exchange of value, such as payment for services.
3. Scope of Work: Detailed description of tasks, materials, and deliverables.
4. Timeline: Project start and completion dates with milestones.
5. Payment Terms: Schedule, method, and conditions for payment.
 6. Risk Allocation: Defines responsibilities for unforeseen events.
7. Change Orders: Process for modifying the contract during execution.
8. Dispute Resolution: Mechanism to handle disagreements (e.g., arbitration).
9. Termination Clause: Conditions under which the contract may be ended.

Construction contract Types: Construction work main types are:

1. Lump Sum Contract: A fixed price for completing all work. The contractor bears

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the risk of cost overruns.

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2. Cost-Plus Contract: The contractor is reimbursed for actual costs plus a fee or
percentage for profit. It is flexible for projects with uncertain scopes.
3. Time and Materials Contract: Payments are based on time spent and materials

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used, often with an agreed maximum price cap.
4. Unit Price Contract: Work is divided into units, and the contractor is paid a fixed

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rate for each unit, suitable for projects with repetitive tasks.
5. Design-Build Contract: The contractor handles both design and construction,
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streamlining the process.
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6. Integrated Project Delivery (IPD): All parties work under a single contract,
sharing risks and rewards to promote collaboration.
7. Guaranteed Maximum Price (GMP) Contract: The contractor guarantees the
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project will not exceed a set price, with savings often shared.
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Contract Law – Tendering Process, Contract Award, and Documentation

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1. Tendering Process
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The tendering process is a structured method of selecting a contractor for a project. It

involves the following steps:

1. Invitation to Tender:
○ The project owner advertises or directly invites contractors to submit bids
for a project.
 ○ The tender document outlines project scope, specifications, eligibility
criteria, and deadlines.
2. Submission of Bids:
○ Interested parties submit bids, which include technical proposals, pricing,
and timelines.
3. Evaluation of Bids:
○ Proposals are reviewed based on predefined criteria such as cost, quality,

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experience, and compliance with project requirements.

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4. Shortlisting and Negotiation:
○ Shortlisted bidders may be invited for clarification or negotiation before
final selection.

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2. Contract Award

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The contract award formalizes the tendering process by selecting the contractor and
establishing a legally binding agreement. Key steps include:
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1. Selection of the Winning Bid:
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○ The most suitable contractor is chosen based on evaluation criteria.

2. Notification of Award:
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○ The winning bidder is informed through a formal letter of award (LOA).

This document specifies the intent to contract and key conditions.
3. Acceptance of Award:
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○ The contractor confirms acceptance, signaling agreement to proceed

under the outlined terms.
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4. Signing the Contract:

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○ A formal construction contract is signed, detailing all terms and conditions,

including scope, costs, payment schedule, timelines, and dispute
resolution.

3. Documentation
Proper documentation is crucial for clarity, enforceability, and future reference. Essential
documents include:

1. Tender Documents:
○ Invitation to Tender (ITT)
○ Scope of Work (SOW)
○ Specifications, drawings, and bill of quantities (BOQ)

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2. Bid Documents:
○ Contractor's technical proposal

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○ Financial proposal and breakdown
3. Contract Agreement:

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○ General and special conditions of the contract
○ Payment terms and milestones

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○ Project timeline and penalties
4. Legal and Regulatory Documents:
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○ Permits, licenses, and approvals
○ Insurance and bonds (performance, advance payment, etc.)
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5. Post-Award Documents:
○ Work schedules
○ Change orders and amendments
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○ Communication records
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Contractor and Sub-Contractor Management

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1. Role of Contractor:
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○ Responsible for overall project execution, meeting quality, timeline, and

budget goals.
○ Coordinates with the client and sub-contractors.
2. Role of Sub-Contractor:
○ Hired by the main contractor to perform specific tasks (e.g., electrical
work, plumbing).
 ○ Works under terms defined in a sub-contract.
3. Management Practices:
○ Clear contracts detailing scope, payment terms, and timelines.
○ Regular communication and updates to ensure alignment with project
goals.
○ Monitoring performance and resolving issues promptly.

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Claims

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1. Definition:
Claims arise when a contractor or sub-contractor seeks compensation for
unforeseen costs or delays.

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2. Common Types:
○ Extension of Time (EOT): Due to project delays beyond the contractor’s
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control (e.g., weather, design changes).
○ Cost Claims: For additional work, material price fluctuations, or delays.
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3. Resolution:
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○ Documentation of claims with evidence (e.g., delays, change orders).

○ Negotiation or mediation to settle amicably.
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Disputes

1. Definition:
Disputes occur when parties disagree on contract terms, claims, or performance.
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2. Common Causes:
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○ Misinterpretation of contract terms.

○ Non-payment or delayed payments.
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○ Quality of work not meeting standards.

3. Resolution Methods:
○ Negotiation: Informal discussions to reach mutual agreement.
○ Mediation: Involves a neutral third party to facilitate resolution.
○ Arbitration: Binding resolution by an arbitrator.
 ○ Litigation: Court action as a last resort.

Compensation

1. Types:
○ Direct Costs: For completed work or materials.
○ Damages: Compensation for losses due to breach or delays.
○ Liquidated Damages: Pre-agreed penalties for delays or

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non-performance.

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2. Process:
○ Claims are evaluated based on the contract terms and supporting
documentation.

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Breach of Contract

1. Definition: IL
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A breach occurs when one party fails to meet their contractual obligations.
2. Types:
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○ Material Breach: Significant failure affecting the project.

○ Minor Breach: Non-critical but still actionable.
○ Anticipatory Breach: One party signals they cannot fulfill obligations.
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3. Remedies:
○ Compensation for losses (monetary damages).
○ Contract termination and hiring a replacement contractor.
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○ Specific performance (court orders completion of work).

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Project Completion and Closure

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1. Project Completion:
○ Final Inspections: Ensuring the work meets specifications.
○ Punch List: Addressing any outstanding issues before handover.
○ Approvals: Securing necessary permits and client acceptance.
2. Project Closure:
 ○ Handover: Delivering completed work, manuals, and warranties to the
client.
○ Final Payments: Settling payments after verifying completion.
○ Documentation: Archiving project records, including as-built drawings.
○ Lessons Learned: Reviewing performance and documenting insights for
future projects.

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What is the difference between a contract and tendering

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