CHAPTER 6

Project Contract Administration

 WHAT IS CONTRACT ADMINISTRATION?
• A contract is a legally binding agreement between two or more parties
who agree to buy or sell goods and services from one another.
• The contracted party may be an individual or another business.
• Contract administration is the process of creating a contract between a
business and a contracted party.
• Contracts administration starts when two parties agree they want to
form an agreement.
• It outlines the rights and responsibilities of all parties and helps reduce
the risk of any party forfeiting their duties per the agreement.
• Contracts typically include details related to the scope of work of the
project, quality control, legal jurisdiction, project schedules,
and payment terms.
• You may use this process in a variety of industries, such as business,
finance, construction or sales.
 WHAT ARE THE BENEFITS OF
CONTRACT ADMINISTRATION?
It makes sure both parties understand their responsibilities to one another.
 They know what each party is accountable for, the deadline for deliverables and the delivery
method.

It facilitates communication between both parties.

 During the contract administration process, both parties express what they want from the contract
and agree to fair terms.

It makes sure contracts meet official requirements.

 Contract administration ensures business contracts are transparent and recorded according to
industry legislation.

It protects both entities.

 The business or the contracted partner can seek damages if the other party delivers less than
promised.

It improves relationships between businesses and their contracted partners.

 Since contract administration ensures contracts are transparent and fair to all parties, they can
make relationships stronger.
 CONTRACT ADMINISTRATION VS
CONTRACT MANAGEMENT
• Both terms are often used interchangeably, although they are two
separate and different processes.
• Contract administration concerns the planning of contracts.
• Contract management concerns the implementation of contracts.
• Everything that happens with a contract before it's signed is contract
administration.
• Everything that happens after a contract gets signed is contract
management.
 STEPS FOR EFFECTIVE CONTRACT ADMINISTRATION

• While the contracting partners and contract terms vary, most

contract administrators take the same steps in the process.
1. Define the contract's scope and deliverables
 Defining the contract scope and deliverables makes it clear what

the business expects of its contracting partner.

 Defining clear expectations minimises the risk of contract

disagreements and scope creep.

 Projects are more likely to stay on track and meet their deadlines

when contracts clearly state the agreement terms.

2. Create a detailed contract timeline
 Create a contract timeline that shows every important milestone in

the contract's lifecycle.

 Helps projects stay focused and on track.
 The business can refer to the timeline if there are contract

disputes or missed deadlines.

They may also refer to the timeline when deciding to renew a
partner's contract.
Some important details to include on the contract timeline:
 the contract's start date
 the contract's end date
 deadlines for deliverables
 dates for progress updates

3. Create a contact list

 Develop a list of contacts containing all the details of the people

involved in the contract.

 This may be a very small list for simple contracts or a large list for

contracts between businesses or business partners with several

locations or relevant departments.
 Include each contact's name, best phone number and digital
4. Establish financial terms
• Set the business's preferred financial terms for the contract.
• These financial terms may get modified during the negotiation process with
the contracted partner.
• The initial financial terms give both parties a starting point for that process.
Some important financial terms to define:
 the number of payments and their intervals
 the process for requesting additional funding, if applicable
 the process for verifying invoices are correct and appropriate for the contract
 the period before or after deliverables get received that the business makes
payments
 the process for ensuring accurate invoices get paid within the determined
timeframe
5. Anticipate contract risks
• Creating a detailed contract minimises the risk of delays and disputes
between the parties.
• Read through the contract carefully and identify the areas that carry
some degree of risk.
• Then detail the steps that the people involved in the contract could take
to reduce the impact of challenges.
 For example, stormy weather may cause delays in a construction project. Creating a
flexible timeline may reduce the impact of delays and ensure the project succeeds
under these conditions.
 Your strategies can form the project's risk management plan.

6. Draft the contract

Use the information in your plans to draft your contract.
Focus on writing clearly to minimise confusion.
7. Negotiate the contract terms
 Send your draft contract to the contracted partner, the project manager
and relevant stakeholders.
 Schedule a meeting so all relevant parties can meet and discuss the
contract and any concerns they have.
8. Write the final contract
 Use the feedback from negotiations to write the final contract.
 If the business has a legal department or legal representative, they may
like to write or proofread the contract.
 Once you and the project manager are happy with the contract, present it
to the contracted partner.
 Getting the contracted partner to sign the contract is the final step of the
contract administration process.
 STAGES OF CONTRACT LIFECYCLE
MANAGEMENT
There are seven stages in which contract management practice take
place. These are:
Inception: contract manager should work closely with the administration
team to identify what goals need to be met, the type of suppliers that
should be appraised, and what goods or services need to be obtained.
Negotiation: Contract Managers will want to negotiate the best terms
and reach a cost-effective agreement.
 Any redlining, changes to the terms and the draft records sent will need
to be captured and recorded by the contract administration team.
Execution: Contracts are routed to the relevant parties, signed and
returned.
 Contract administrators will lead this process, but Contract Managers
will need to know when contracts have been returned so they can
execute the agreement.
Start-Up: Administrators will extract contract metadata and add it to
the central repository.
 Once stakeholders are aware and understand the contract, Contract Managers will
obtain and assign roles for the ongoing management required.

Operation: Contract Managers have a huge role to play during the

operation of a contract, from measuring performance, mitigating
risks, reviewing commercial success and managing contract
disputes if needed.
 This monitoring of performance will ensure that contract obligations are being
fulfilled.

Renewal: The renewal phase of a contract is a vital time for Contract

Managers to act.
 With the right visibility, they can mitigate the risk of contracts auto-renewing, they
can find cost-effective alternatives and they can create a stronger negotiating
position to define better terms before the contract renews.

Close-out: Completing a contract doesn’t mean the work has

ESSENTIAL ELEMENTS OF A CONTRACT
1. Offer and acceptance
 To form a contract, one party must make an offer that another party

accepts.
 After the offer is made, goods and/or services are exchanged between the

two parties in most cases.

 The party making the offer: the individual or business who owns the goods

or services being offered is known as the offeror.

 An offer generally consists of two parts: the expression and the

intention.
 When the parties express a desire to enter into a legally valid contract,

this is called the expression.

 An expression can take on many forms: a verbal discussion to a formal

letter
 The intention is a presumption by both parties that the agreement will be

legally binding and they intend to uphold their obligations related to it.
2. The intention to be legally bound
 States that a contract is only legally enforceable if the parties intended
it to be a binding contract.
 Without the intention to be legally bound, it may be impossible to
enforce the contract.
 Conversely, if this intent is present, a party who breaches the
agreement may face legal action.
3. Awareness
For a contract to be binding, both parties must have a meeting of the
minds, meaning they must both be aware of what they are getting into.
The parties must:
 Be active participants in the agreement
 Recognize that a contract exists
 Clearly, decisively, and mutually establish that the agreement is
4. Consideration in a contract
• Consideration is another essential element of a contract, and it
represents the agreed-upon value in goods, services,
property, or even protection from harm resulting from the
agreement.
• For a contract to be legally enforceable, there must be
“mutuality of obligation”.
 This means that both parties must meet their obligations, and consideration
represents the commitment the parties make to each other.
• There doesn't need to be an exchange of money for contractual
consideration to be valid. However, money, in the form of a one-off
or recurring payment, is consideration in practice. Besides money,
some examples of proper consideration include:
 Services
 Personal property
 Real property
If a contract lacks clear consideration, a court might consider it invalid.
Certain things will not meet the definition of consideration.
Here are some examples of a lack of consideration:
 The agreement is the promise of a future gift.
 The contract contains an illusory promise that a party has no actual
obligation to fulfil.
 One of the parties was already legally obligated to perform under the
terms of the contract.
 The parties are not in mutual agreement regarding consideration.
5. Capacity to contract
Only parties with legal capacity are allowed to enter a contract.
 This means people that understand the terms, responsibilities, and consequences
of the contract before they sign.
 If it turns out that the parties lacked the capacity to contract, the
agreement will be void.
6. Legality of a contract
This is a key consideration for contracts. All contracts are subject to the
laws of the jurisdiction where they are signed.
However, FDRE federal and state laws do not always agree, and in those
instances, the Contract Clause of the Ethiopia Constitution will prevail.
There are also instances where a contract is no longer legal,
such as when:
• A party signed the agreement due to coercion, threats, false
statements, or unsuitable persuasion.
• Oppressive obligations or results are triggered.
• The contract violates public policy or endangers general
welfare.
• An error in the contract has a material effect upon the initial
terms.
• Circumstances beyond the control of the parties make
performance impossible.
 TYPES OF CONTRACTS
The three most common contract types include:
1.Fixed-price contracts
2.Cost-plus contracts
3.Time and materials contracts
•
1. Fixed-Price Contracts
• Also known as lump-sum contracts.
• This type of contract is ideal in situations where there is a clearly
defined scope of work.
• In such cases, the buyer provides a detailed description of the final
outcome, including product dimensions, expected timeframes,
material specifications, and more.
• If the buyer makes any changes to the scope of work or timeline, it can
mean additional charges from the seller.
• Buyers know the exact cost of the project from the start.
• Fixed price contracts result in a minimal risk for buyers.
• While buyers sometimes make a lump-sum payment at the start of the
project, the seller takes on the majority of the risk.
2. Cost-Plus Contracts
• Also known as a cost-reimbursable contract.
• Here buyers pay for the cost of the work plus a fixed percentage charged by the
seller for providing the goods and services.
• Sellers charge the buyers for the actual cost of any materials, equipment,
labor, and overhead involved in running the project.
• To make a profit, sellers tack on an extra fee based on the terms of the contract.
• A cost-plus contract defines all rates and percentages, as well as all allowable
expenses and incurred costs.
• The contract often also includes a maximum amount sellers can spend.
• Any spending over that amount requires the buyer's approval.
• With this contract, neither the rates for materials and labor nor the quantity of
time needed to complete the project is fixed. As such, costs may fluctuate
throughout the life of the project.
3. Time and Materials Contracts
• A time and materials contract is great for buyers who don't necessarily
know what they want when they begin their project.
• Sellers use time and materials contracts when it's difficult to determine
the amount of time and the types of materials required to
complete the project.
• With this type of contract, sellers charge for the cost of any materials
they end up using plus an hourly or daily wage.
• All rates, including wages, are included in the terms of the contract.
• Once the contract is finalized and accepted, these rates stay in place
for the duration of the contract.
 For example, a time and materials contract works well for software developers hired
to create an app for a company that is unsure about what the app needs to do. The
developers charge for any time spent programming, designing, and testing the
app, as well as any additional iterations required to finalize the product.

• Time and materials contracts work well for budget-conscious buyers.

TYPES OF CONTRACTING STRATEGIES

There are three different types of contracting strategies:

I. storage and retrieval strategies,
II. workflow efficiency strategies, and
III. risk mitigation strategies.
STORAGE AND RETRIEVAL STRATEGIES
• Storage and retrieval strategies help you centralize all your contracts in
one place, eliminating lost, ad misplaced across your organization.
• Help key staff find and extract individual contracts and key information
across a range of contracts.
Go All-Digital
 The first strategy to embrace is the all-digital document strategy. This

means creating all new contracts and supporting documents digitally

and digitizing all existing contracts and documents.
 Once all your contracts are in digital format, your contract data can

now be harnessed.
Centralize Contracts in a Digital, Searchable, and Cloud-based
Repository
 Once you’ve adopted the all-digital strategy, you need a place to store

all your digital documents.

 This requires centralizing all agreements and supporting documents in a
WORKFLOW EFFICIENCY STRATEGIES
Creating a more efficient contract workflow speeds up the entire contract
process, reduces errors, and saves your firm money.
Establish Clear Responsibilities
• Each department and individual involved with creating, reviewing,
and approving contracts must know their precise duties and
responsibilities.
• Employees need to know in advance what they can and can’t do and
what they need to do.
• This will help avoid workflow conflicts and speed up the process.
Automate Contract Requests, Reviews, and Approvals
• To get the contract process started more quickly and on the right track.
• This includes leveraging online contract request forms with required
information that can then be automatically routed to the right people for
review and approval.
Leverage Real-time Collaboration and E-signature Tools
• Now that you have a contract ready for negotiation, it’s critical to take
advantage of real-time contract collaboration tools where you
automatically track all comments, participants, and edits.
• It’s a very easy and accurate way to manage version control as well.
• You can completely eliminate the inefficient and risky practice of
emailing legal agreements back and forth.
• Then, once everyone is in agreement with the changes, you can
leverage e-signatures to execute the contract from anywhere on any
device.
RISK MITIGATION STRATEGIES
• Risk mitigation strategies help you overcome potential challenges at all
stages of the contract lifecycle so that you can better achieve your
business goals without incurring undue risk in the process.
Control Access with Permissions and Authentication
• When all your contracts are digitally stored in a single repository, it’s
easy to control access to the entire repository and individual contracts.
• To reduce the risk of inappropriate disclosure or data theft, use role-based
and feature-based permissions to allow access only to authorized
individuals or departments.
• You can then track every individual who has accessed a given contract,
enabling more precise auditing.
Create a Compliance Framework
• Complying with governmental and industry regulations is
essential; non-compliance can be costly.
• Every contract you execute should conform to your established
compliance framework, which is made easier when you’re
working with standardized contract templates, clauses, and
language.
• In addition, key employees should be aware of all applicable
regulations and be made responsible for ensuring compliance.
 CONTRACTUAL DISPUTES
What is a contractual dispute?
• A contractual dispute is usually when a party in a contract has a
disagreement concerning its terms or definitions, whether it’s you or
your client.
• If handled poorly, contractual disputes can be costly and time-
consuming, end up in court and damage your business relationships
and reputation.
What causes a contractual dispute?
A contract is only formed when four basic elements are satisfied. They
are:
 an offer
 an acceptance of the offer
 a form of consideration (often by way of payment) for the goods or

services in the offer.

 an intention to create legal relations.

All parties must have a solid understanding of the terms in the contract
and mutually agree on them.
Common types of disputes
In business, a contractual dispute could involve anyone, including
your client or suppliers.
Examples of disputes include:
• Issues when your client reviews your contract.
• Issues concerning an offer you’ve made in a contract.
• Disagreements regarding the meaning of a contract’s technical terms.
• Mistakes and errors concerning the terms you’ve addressed in a
contract.
• Fraud, such as a party claiming they’ve been forced into signing your
contract.
• Disputes where those involved in a contract do not stand by their
 CONTRACT DISPUTE RESOLUTION
Step set out, that you can go about finding a resolution when a contract
dispute arises in the course of your business.
I. One: Review your contract
II. Two: Alternative options to litigation – Binding and non-binding options
III. Three: Pre-Action Protocols and Litigation
IV. Four: What limitation periods apply?
The requirement of reasonableness
Limitation periods and the Pre-Action Protocols
V. Five: Consideration of costs
VI. Six: How can you prevent a contract dispute?
Review your contract
The first step is to carefully review the contract in question. The
contract will provide information that will help you determine:
How serious the dispute is?
How the contract should be used to inform how you resolve the
dispute
 Which country’s law is governing the contract?
 Is there a non-binding Alternative Dispute Resolution (ADR)
clause in the contract?
 Is there a binding decision (jurisdiction clause) in the contract?
 Is there an escalation clause?
Step Two: Alternative options to litigation – Binding and
non-binding options
It’s possible for a contract to cover both contractual disputes
(conflicting interpretation over the terms of the contract) and non-
contractual disputes
Non-binding: The most common methods of non-binding
options to litigation are:
• Negotiation
• Mediation
• Early neutral evaluation (ENE
Binding: The most common methods of binding options to
litigation are:
• Arbitration
 CONTRACT CLOSE-OUTS
What is a contract closeout?
• It is usually a simple, but detailed administrative procedure agencies
should perform after the contract is completed.
A contract is completed when:
• All goods ad service have received ad accepted
• All reports have been delivered ad accepted
• All administrative actions have been accomplished
• All final payment has been made to contractor
• All service have been satisfactorily performed, ad all products have
been delivered ad accepted y the agency
• All property, inventory ad ownership issues are resolved including
disposition of ay equipment or licences purchased under the contract
 CONTRACT CLOSEOUT CHECKLIST
The checklist for administrative actions that are required to close out a
contract that has met all its terms and conditions.
• Issue interim contract completion statement
• Ensure disposition of classified material is completed
• Ensure there are no outstanding value engineering change proposals
• Settle all interim or disallowed costs
• Complete price revision
• Ensure Prime contractor has settled Subcontracts
• Settle prior year indirect cost rates
• Ensure submission of final subcontracting plan report
• Completed contract audit
• Ensure receipt of contractor’s closing statement (release)
• Review/submit contractor’s final invoice/voucher