Business Contract Claims and Completion.pptx

Business Contract Claims and Completion

1. CONTRACT CLAIMS AND COMPLETION

2. PRESENTED BY: MR. DARWIN BOGONKO MONG’ARE, MSC. PROCUREMENT AND LOGISTICS SPECIALIST DATE: 13 TH JUNE 2025

3. Formal written request to modify contract terms Due to disruptions, changes, or failures beyond party’s control Governed by: Public Procurement and Asset Disposal Act (PPADA) 2015 Public Procurement Regulations 2020 Specific contract terms (e.g., FIDIC) What is a Contract Claim?

4. Common Types of Contract Claims in Kenya Claim Type Explanation Kenyan Example Delay in Site Access Site not ready due to legal, land, or utility issues Kisumu KeRRA road delayed 6 weeks over land compensation Unforeseen Site Conditions Unexpected physical challenges increase cost/time KETRACO Suswa-Isinya volcanic rocks required blasting Variation in Scope Additional or changed deliverables mid-contract ICT Labs under DLP added projectors & switches Payment Delays Delayed payments affecting cash flow Turkana borehole contractor unpaid >3 months Delay in Site Access Site not ready due to legal, land, or utility issues Kisumu KeRRA road delayed 6 weeks over land compensation Unforeseen Site Conditions Unexpected physical challenges increase cost/time KETRACO Suswa-Isinya volcanic rocks required blasting

5. Health Facility Upgrade – Meru County Delay due to missing approved architectural drawings Contract extended 2 months after validation Solar Street Lighting – Kitui County Requested 20 extra lights (+20% cost & 2 weeks extension) Approved under Regulation 139(1) – max 25% variation Additional Kenyan Examples

6. Prevent unilateral contract changes Provide legal recourse for disruptions Maintain project momentum without re-tendering Adjust for legitimate contractor costs Ensure audit compliance under PPADA & Auditor General reviews Why Are Claims Important?

7. Summary Table – Claims in Kenya Claim Type Trigger Example Typical Remedy Delay in Site Access Legal or land disputes Kisumu KeRRA road project Time extension, cost compensation Unforeseen Conditions Unknown site physical challenges KETRACO tower installation Variation order, additional cost/time Scope Variation Additional requested work ICT labs requesting projectors Change order (max 25% contract value) Payment Delay IFMIS bottlenecks or budget issues Turkana borehole contractor Interest claims, dispute escalation Claim Type Trigger Example Typical Remedy Delay in Site Access Legal or land disputes Kisumu KeRRA road project Time extension, cost compensation

8. Best Practices in Claims Management Practice Description Use written claims only All claims must be formal and supported by documentation (reports, photos) Maintain daily site records Project managers keep logs for claim defense Review claims via Tender Committees Claims affecting cost/time reviewed and approved legally Stay within PPADA limits Variations must not exceed 25% unless justified and audited Use ADR before litigation Engage negotiation or mediation before court action

9. Dispute Resolution in Public Procurement

10. Rejected contract claims (time/cost variations) Delayed payments Quality or performance disagreements Breach of contract or wrongful termination Governed by: PPADA 2015 Public Procurement Regulations 2020 Arbitration Act 1995 Civil Procedure Act Why Disputes Arise in Public Contracts

11. From Least to Most Formal: Negotiation Mediation Adjudication / Expert Determination Arbitration Litigation Each step aligns with PPADA preference for Alternative Dispute Resolution (ADR) Dispute Resolution Hierarchy in Kenya

12. Direct discussions between parties to resolve issues No third party involved Example : Nairobi County – ICT System Crash Supplier and ICT unit renegotiated SLAs after system failure Fix agreed within 2 weeks + temporary penalty imposed Outcome: Service restored, revised SLA signed Best Use: Minor performance disputes Early-stage misunderstandings Preventing escalation Step 1 – Negotiation (Informal)

13. Neutral facilitator guides settlement talks Decision only binding if parties agree Example : KeRRA Road Project – Narok Subgrade failure dispute resolved with retired engineer as mediator Result: Cost sharing (60:40) between county and contractor Best Use: Technical or payment-related disputes Post-claim impasse Step 2: Mediation (Third-Party Assisted)

14. Quick ruling by a qualified expert (especially for FIDIC contracts) Can be binding or advisory Example : SGR Phase 2A – Nairobi–Naivasha Bridge piling costs disputed due to steel price hikes FIDIC adjudicator granted partial cost & time adjustment Best Use: Engineering & technical scope disagreements Project delivery timelines Step 3: Adjudication / Expert Determination

15. Binding legal resolution under Arbitration Act, 1995 Private, faster than courts Example : KURA Drainage Dispute – Nairobi CBD Climate adaptation led to design change claim Arbitrator awarded 18% cost increase + 1-month extension Best Use: High-value or cross-border disputes Contract variations or interpretation conflicts Step 4: Arbitration (Formal & Private)

16. Public court process Final legal remedy Example : Kakamega County PPP ICU Equipment Case Supplier sued over KES 200M unpaid lease High Court ruled breach of contract → payment + interest awarded Best Use: Fraud , breach, or public interest Failed ADR efforts Legal clarity needed Step 5 – Litigation (Last Resort)

17. Legal Framework for Dispute Resolution in Kenya Law/Regulation Purpose PPADA 2015 (Sec 167–175) Governs procurement dispute processes Public Procurement Regulations 2020 Contract management & reviews Arbitration Act, 1995 Defines arbitration procedures & enforceability Civil Procedure Act, Cap 21 Court-based dispute resolution rules FIDIC Contracts (if applicable) Infrastructure adjudication/arbitration

18. Summary Table – Mechanisms in Practice Stage Method Example Binding? Best For Step 1 Negotiation Nairobi ICT SLA fix ❌ No Early-stage issues Step 2 Mediation KeRRA Narok road issue ✅ If agreed Scope or quality disputes Step 3 Adjudication SGR piling cost ✅ Yes Technical or scope disagreements Step 4 Arbitration KURA drainage redesign ✅ Yes Contract variation, infrastructure Step 5 Litigation Kakamega ICU payment ✅ Yes Final recourse or legal breach

19. Start with ADR : Always attempt negotiation or mediation before arbitration/litigation Use legal frameworks : Follow PPADA, Arbitration Act, and contract terms Document everything : Site logs, minutes, letters — crucial in disputes Only escalate when needed : Litigation is time-consuming, public, and costly Key Takeaways

20. Contract Closeout & Completion Procedures

21. Formal closure of the contract after : All deliverables are completed and accepted Payments are finalized Documentation is submitted and archived Warranties and support terms are acknowledged Lessons learned are recorded Ensures accountability, audit readiness, and project integrity . What is Contract Closeout?

22. Closeout Steps in Kenya’s Public Sector Step Description Kenyan Example Final Inspection Physical check of deliverables by engineers or project managers MoE school visits under Digital Literacy Programme Performance Evaluation Rating supplier based on KPIs like timeliness and quality KeRRA engineers assess road contractors on delivery and safety compliance Documentation Submission Upload delivery notes, reports, warranties into IFMIS Makueni County scans and uploads signed documents for payment processing Final Payment Issued after 100% completion confirmation, subject to retentions/damages Turkana holds 5% of payment for water projects until end of defect liability Lessons Learned Review session to document successes and improvement areas Nairobi County conducts post-project workshops for supplier performance feedback

23. Project : ICT Equipment for High Schools Final Inspection: MoE teams verified delivery and usability in sampled schools Performance Review: Teacher feedback on equipment quality and support Documentation: Signed delivery notes and invoices uploaded to IFMIS Final Payment: Released after 95% equipment delivery confirmation Lessons Learned: Logistics issues led to tighter vetting of future suppliers Example 1 – Ministry of Education E-learning Contract

24. Project : Rural Roads under KeRRA oversight Inspection: Engineers use digital apps for real-time site quality logs Performance Evaluation: Based on specs compliance, completion timelines, safety Documentation: Completion certificates + inspection reports entered in IFMIS Final Payment: Triggered after defect liability checks Lessons Learned: Led to better prequalification due to contractor skill gaps Example 2 – KeRRA Feeder Road Projects

25. Public Accountability: Tracks how public funds were used Compliance: Meets PPADA 2015 and audit requirements Risk Management: Prevents disputes and post-completion claims Supplier Rating: Forms basis for future tender evaluations and blacklisting Knowledge Transfer: Lessons inform future project delivery improvements Why Contract Closeout Matters

26. Closeout Responsibilities in Practice Role Responsibility Technical Officers/Engineers Conduct inspections, generate reports User Departments Confirm if deliverables meet service or operational needs Procurement & Contracts Office Coordinate compliance checks and collect closure documentation Finance/IFMIS Unit Process payments based on verification and system entries Project Manager Lead lessons learned review and ensure closure file is complete

27. Follow structured steps: inspection → evaluation → documentation → payment Use IFMIS for financial and audit tracking Align closeout with PPADA 2015 and Public Procurement Regulations 2020 Document lessons learned to build institutional memory Use supplier performance to guide future prequalification and risk management Key Takeaways – Contract Closeout in Kenya

28. Tools for Assessing Contract Performance and Completion Quality

29. Definition: Structured evaluation tools to rate contractor performance. Key Metrics: Timeliness Quality Communication Compliance Tool #1 – Performance Scorecards

30. Purpose : Helps in supplier evaluation Aids in future tender qualification decisions Example: University of Nairobi & Kenyatta University use scorecards to rate lab equipment suppliers – late deliveries or substandard tools reduce future eligibility. Tool #1 – Performance Scorecards

31. What It Is: Formal confirmation by engineers/project managers that: All contracted works are complete No outstanding defects Standards/specs are met Purpose: Triggers final payment and official contract closure Example: KeRRA Feeder Roads: Contractors must obtain signed completion certificates from regional engineers before receiving final payments. Tool #2 – Site Completion Certificates

32. What is IFMIS? Integrated Financial Management Information System used in Kenya for: Logging deliveries Uploading inspection & completion reports Tracking payments Ensuring audit trail Tool #3 – IFMIS Reports

33. Purpose : Transparency & accountability Required for Auditor General audits Example: Elgeyo-Marakwet County (2022): Auditor flagged missing IFMIS closeout documents → delayed project audit clearance. Tool #3 – IFMIS Reports

34. Summary Table – Tool Comparison Tool Role Kenyan Example Performance Scorecards Rate contractor performance Lab equipment suppliers at UoN, KU Site Completion Certificates Confirm project completion & quality Required by KeRRA for rural roads IFMIS Reports Log financial & delivery data for audit Missing closeout reports flagged in Elgeyo-Marakwet

35. Accountability: performance and payments Transparency: Prevents misreporting and corruption Compliance: Aligns with PPADA 2015 and audit rules Audit Readiness: Supports Auditor General reviews Improved Outcomes: Promotes high-quality procurement Why These Tools Matter

36. Key Points to Remember: Use multiple tools to track contract success IFMIS compliance is critical for final payments Completion certificates and scorecards guide future procurement Quote: "You can't manage what you can't measure." – Peter Drucker Closing & Takeaways

37. Case Study: Dispute Resolution in an ICT Contract

38. Contract Summary: Public university contracts local ICT supplier Deliverables: 50 computers, 5 smart boards Timeline: 30 days Warranty: 2 years Current Status (After 40 Days): 30 computers delivered 2 smart boards faulty Supplier cites customs delays & COVID-related shortages Scenario Overview

39. Breach of Timeline Setup incomplete after 40 days Defective Equipment 2 smart boards malfunctioning Extension Request Supplier cites force majeure (COVID-19 + customs delays) Core Contract Issues

40. Role-Play Participants Role Responsibility University ICT Manager Oversees delivery impact on learning Procurement Officer Enforces contract terms Supplier Representative Requests extension, explains delays PPRA Observer (Optional) Ensures legal compliance (PPADA 2015)

41. Delays Due To: Nairobi port congestion Global supply shortages (COVID-19) Request: Formal time extension under force majeure clause Supporting Evidence Needed: Kenya Revenue Authority (KRA) customs clearance Supplier's Justification

42. Learning disrupted for students Ongoing semester impacted Emphasizes urgency for full delivery Reference: MoE’s DLP priorities for timely ICT rollout ICT Manager’s Concerns

43. Refers to key contract terms: Timeline: 30 days Liquidated damages: 0.5%/day of delay Warranty: 2 years Requires: Written delay claims with proof Review of variation cap (25% rule under Regulation 139) Procurement Officer’s Review

44. Negotiation & Resolution Options Option Action Cure Notice Resolve within 10 days Apply Penalty KES 125,000 (0.5% × 2.5M × 10 days) Grant Extension Only with KRA proof + formal change order Enforce Warranty Replace/repair faulty smart boards

45. Learning Points from Simulation Learning Point Description Monitor & Document Keep clear records of delays, defects Justify Claims Use verified documents (e.g., KPA, KRA) Follow Dispute Steps Negotiate → Mediate → Arbitrate → Litigate Comply with PPADA Ensure contract changes follow regulations Closeout Protocol Require evaluations + IFMIS uploads

46. KPA Clearance (ICT Delay): World Bank–funded ICT rollout Liquidated Damages: KEMSA during emergency supplies Warranty Enforcement: DLP tablet replacements Dispute Mediation: Nairobi City County avoided litigation Examples

47. Summary Section Key Takeaway Claims Mgmt Must be justified & documented Dispute Resolution Follow proper escalation procedures Closeout Needs technical sign-offs & IFMIS updates Performance Tools Scorecards, site certificates, logs Case Study Use Practical simulations improve readiness

48. THANK YOU