chapter 6 contract management - Copy.ppt

contract management

1. CONSTRUCTION MANAGEMENT: CEng 5214 CONSTRUCTION MANAGEMENT: CEng 5214
Chapter 6Chapter 6
Construction Project ManagementConstruction Project Management
Contracts ManagementContracts Management
June 2019June 2019
School of Civil and Environmental School of Civil and Environmental
EngineeringEngineering
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2. Contents
Contracts Management
1. Contracts Management
2. Conditions of Contract
3. Contract Administration
4. Obligation and Rights of Parties
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3. 1. CONTRACTS MANAGEMENT
1.1. General
Contracts Management is a process of ensuring the
employer and the contractor fulfill all obligations they
agreed upon while signing the contract.
It is also a process of managing contractual and
commercial issues, from project inception to project
completion.
Contracts management encompass three main
process:
Contract formulation,Contract formulation,
Contract administration, andContract administration, and
Contract closeout.Contract closeout.
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4. 1. CONTRACTS MANAGEMENT
1.2. Responsibilities of Contracts Manager
Contracts manager shall have the following role in the
procurement process and contracts management:
know the procurement process;
understand contract terms and conditions;
make sure contract contains all requirements
(attendance, report, actions and communications)
deemed necessary;
identify risk, incorporate mitigation and allocation of risk
in the contract;
help tailor the contract to the unique needs of the
situation; and
protect the integrity of the project and ability to get
work done.
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5. 1. CONTRACTS MANAGEMENT
1.3 Contract Formulation
Contract Formulation: involves two sub processes,
namely; NegotiationNegotiation and SigningSigning of Contract
Agreement.
Negotiation is a process by which Project Owners
together with their professional representatives’ deal
with the recommended winner of the tender on the
requirements of the tender exclusively which will
become the basis for contractual agreements.
Contract Agreement: is when signing forms of the
contract document which will be the basis for Contract
Administration.
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6. 1. CONTRACTS MANAGEMENT
1.3 Contract Administration
Administration: is a process that ensures the successful
completion of the project under consideration with
substantial compliance of the Terms of the Contract.
It is managing contract relationships between
contractual parties, reviewing and documenting their
performance to establish required corrective actions
and provide a basis for future relationship, and
managing contract related changes.
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7. 1. CONTRACTS MANAGEMENT
1.3 Contract Administration
Contract Administration activities include:

Identify contractual responsibilities of stakeholders;Identify contractual responsibilities of stakeholders;

Determining and understanding the construction components of Determining and understanding the construction components of
the project;the project;

Review submitted (Integrated) schedules and breakdowns for Review submitted (Integrated) schedules and breakdowns for
operations such as organizational breakdowns, resources operations such as organizational breakdowns, resources
breakdowns and time schedules;breakdowns and time schedules;

Record, monitor and evaluate progress of mobilizations, works Record, monitor and evaluate progress of mobilizations, works
and completions;and completions;

Report project status daily and/or periodically and completions;Report project status daily and/or periodically and completions;

Certify qualities of materials, shop drawings, samples, Certify qualities of materials, shop drawings, samples,
workmanships and works;workmanships and works;

Measure works, record site potentials and certify payments and Measure works, record site potentials and certify payments and
completions;completions;

Administer contract changes; and Administer contract changes; and

Mediate disputes.Mediate disputes.
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8. 1. CONTRACTS MANAGEMENT
1.4 Contract Closeout
Contract Closeout is completing and settling each
contract, including the resolution of any open item,
and closing each contract applicable to the project.
It looks into issues related to:
Maintenance Period and Remedial works,
Dealing with Left Over Claims and Disputes (if any),
 Closing of Accounts and Completion Certificates.
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9. 2. CONDITIONS OF CONTRACT
2.1 General
Conditions of Contract is the main component of a
contract which outlines the guidelines and relationships
of parties to successfully manage the project.
Standard forms of contract developed for construction
activities have mostly been drawn up by independent
professional organizations, rather than by one of the
parties to the contract, in order to establish or to
consolidate a fair and just contract.
Purpose of conditions of contract include:
Balanced representation of all relevant industry
participants,
Fair allocation of risk,
Manage and mitigate project risks, and
Facilitate a greater sense of partnership.
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10. 2. CONDITIONS OF CONTRACT
2.1 General
Conditions of contract can be international or local.
International Contract forms:
oICE contract forms,
oNEC contract forms,
oJCT contract forms,
oFIDIC contract forms.
Local contract forms:
oMoUDH 1959 contract forms,
oBaTCoDA 1987 contract forms,
oMoWUD 1994 contract forms,
oPPA 2006 contract forms,
oPPPAA 2011 contract forms.
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11. 2. CONDITIONS OF CONTRACT
2.2 FIDIC Contract Forms
The Fédération Internationale des Ingénieurs-Conseils, FIDIC
organization was founded in 1913 by France, Belgium and
Switzerland, now with membership from over 60 countries.
FIDIC contract forms have been accepted worldwide and
subsequently published starting from 1957 to the recent
MDB Harmonized edition in 2006.
Historical development of FIDIC contract forms:
1957 -First edition,
1969 - Second edition,
1977 - Third edition,
1987 - Fourth edition, (with further amendments in 1992 and
1996),
1999 - New four suites (paradigm shift both in structure and
contents), and
2006 - MDB Harmonized edition.
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12. 2. CONDITIONS OF CONTRACT
2.3 Local Contract Forms
The evolution of conditions of contract in Ethiopia
dates back to 1959.
Historical development of local contract forms:
MoUDH 1959 – General conditions of construction
contracts,
BaTCoDA 1987 – Standard conditions of contract for
construction of civil works projects,
MoWUD 1994 – Standard conditions of contract for
construction of civil works projects,
PPA 2006 – General conditions of contract as part of SBD
not only for works but also for goods and services.
PPPAA 2011 – General conditions of contract as part of
SBD not only for works but also for goods and services.
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13. 3. CONTRACT ADMINISTRATION
3.1 General
The purpose of contract administration is to see that the
contract is properly administered in parallel with the
execution of works.
It is also to ensure that the contractor receives fair and
proper payment for the works executed;
Main issues to be considered in contract administration:
Variations,
Powers and responsibility of the engineer,
Delays, Time extension, and Liquidated damage,
Payment,
Price adjustment,
Default of employer and contractor,
Suspension
Termination, and
Claims and disputes.
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14. 3. CONTRACT ADMINISTRATION
3.2 Variation
Variation is the addition, omission or alteration of works
in terms of quality, form and function necessary to
complete the works contained in the main contract.
The works are defined in the contract and are usually
described in brief at the beginning of the specification
or BOQ.
Construction contracts contain wide provision for
variation.
Variations: Sub-Clause 51.1 (MoWUD 1994, FIDIC IV); Sub-clause 13.1
and 13.3 (FIDIC 1999, 2006 MDB);
Engineer’s power to order variation: Sub-clause 51.2 (MoWUD 1994,
FIDIC IV);
Valuation of variation: Sub-clause 52.1 (MoWUD 1994, FIDIC IV)
Engineer’s power to fix rates: Sub-clause 52.2 (MoWUD 1994, FIDIC
IV); and
Variation exceeding 10% (15%): Sub-clause 52.3 (MoWUD 1994, FIDIC
IV).
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15. 3. CONTRACT ADMINISTRATION
3.3 Powers and responsibility of Engineer
The Engineer, not a party to the contract between the
employer and the contractor, is in fact empowered
under various clauses of the MoWUD 1994, PPA 2006,
FIDIC 4th edition and FIDIC1999, 2006 MDB conditions of
contract.
The power of the Engineer includes:
Giving instructions,
Making decisions and/or determinations, and
Ordering variations, etc.
The above decisions are binding on the parties to the
contract unless and until they are subsequently or
varied by DRB, ADR or an arbitrator.
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16. 3. CONTRACT ADMINISTRATION
3.3 Powers and responsibility of Engineer
The engineer is considered as:
Impartial third party in MoWUD 1994 and FIDIC IV (Sub-
clause 2.6); in dispute settlement under FIDIC IV (Clause
67.1); in giving determination on matters in relation to
the contract - PPA 2006 Clause 4.1; and FIDIC 1999, 2006
MDB clause 3.5.
Agent to the employer in FIDIC 1999, 2006 MDB (Sub-
clause 3.1) and PPA 2006 (Clause 4).
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17. 3. CONTRACT ADMINISTRATION
3.4 Delays, time extension and liquidated damage
Delay caused by employer
If the employer cause delay in site
handover/possession (MoWUD 1994 Sub-clause 42.1;
FIDIC IV Clause 42.2; and FIDIC 1999, 2006 MDB Sub-
clause 2.1) and to effect payment (MoWUD 1994 and
FIDIC IV Clause 60).
If the Engineer failed to give instruction and notice on
time, do not provide drawings on time, etc.
Remedial right of the contractor
Financial claim, andFinancial claim, and
Time extensionTime extension.
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18. 3. CONTRACT ADMINISTRATION
3.4 Delays, time extension and liquidated damage
Delay caused by contractor
Delay of progress of works and failure to meet
completion time.
Remedial right of the Employer
Liquidated damage.
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19. 3. CONTRACT ADMINISTRATION
3.5 Payment
The payment procedures are thoroughly dealt in
Clause 60 of MoWUD 1994 and FIDIC IV; Sub-clause
14.7-11 FIDIC 1999, 2006 MDB edition as follows:
Monthly statement (interim payment) for progress
payments,
Payment on certificate of completion,
Payment after expiration of period of maintenance,
Correction and withholding of payment certificates,
Final account,
Currency of payment.
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20. 3. CONTRACT ADMINISTRATION
3.6 Price Adjustment
It is common to come across price escalation in
construction projects due to the following factors:
Cost of material,
Design and specification,
Project specific factors,
Competition and market condition, and
Macroeconomic conditions.
Therefore price escalation provisions are stated in many
contract forms.
Two methods of price adjustment:
Basic price (base date price) (Clause 70.1 MoWUD 1994; FIDIC IV
edition, clause 13.7 FIDIC 1999, 2006), and
Indices/Adjustment formula (clause 47.1 PPA 2006, clause 13.8
FIDIC 1999, 2006 MDB).
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21. 3. CONTRACT ADMINISTRATION
3.7 Default of employer and contractor
Breach of contract by the employer (Sub-clause 69.1
of MoWUD 1994 and FIDIC IV); Clause 16 of FIDIC 1999,
2006 (outlines employers default as a basis for
contractor’s entitlement to suspend and terminate the
contract).
Non-payment, late or under payment,
None or late possession of site,
Obstruction of works,
Non-coordination of work of the main contractor,
Failure to allow the engineer to function in an
independent role,
Delay in providing drawings, information and
approvals.
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22. 3. CONTRACT ADMINISTRATION
3.7 Default of employer and contractor
Breach by the contractor includes (Sub-clause 63.1 of
MoWUD 1994 and FIDIC IV); Clause 15.2 of FIDIC 1999,
2006 (outlines contractors default as a basis for
Employer’s entitlement to suspend and terminate the
contract)
Abandonment or total failure to complete,
Delay in completion,
Defective works or materials.
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23. 3. CONTRACT ADMINISTRATION
3.8 Suspension
The Engineer may instruct the contractor to suspend
some or all of the works as appropriate (Sub-clause 8.11
of FIDIC 1999, 2006 MDB).
If it continues for more than 84 days, the contractor asks
permission to proceed.
If the engineer fails to respond within 28 days the
contractor can terminate the contract.
The contractor has a right to suspend or reduce
progress of work giving 28 days prior notice, if he is not
paid within 28 days after the Engineer approved the
payment certificate and delivered to the employer as
per Sub-clause 60.10 (FIDIC IV Sub-clause 69.4).
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24. 3. CONTRACT ADMINISTRATION
3.9 Termination
Termination can be a result of completion, discharge of
obligation, default of one party, and force majeur etc.
One of the contracting party has a right to terminate
the contract on the ground of breach by the other
party.
Ground of termination by the Employer:
Bankruptcy/Insolvency of the contractor;
Failure to execute the work in accordance with the contract;
failure to proceed with due diligence; neglect in carrying out
obligations under the contract,
Abandoning the contract;
The contractor has, to the detriment of good workmanship,
defiance of the Engineer’s instruction to the contrary, and
Assigning (sub-let) any part of the contract; and
Suspending the execution of work for 28 days after received
Engineer’s written notice to proceed.
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25. 3. CONTRACT ADMINISTRATION
3.9 Termination
Ground of termination by the Contractor:
Bankruptcy/Insolvency of the employer; being a company
goes into liquidation, other than for the purpose of a
scheme of reconstruction or amalgamation;
Failure of the employer to make payment within the time
stated by the contract;
Obstructing or interfering with the issue of any certificate by
the engineer;
Replacing the engineer against the reasonable objections
of the contractor; and
Employer giving formal notice to the contractor for
unforeseen reasons, due to economic dislocation, it is
impossible for him to meet his contractual obligations.
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26. 3. CONTRACT ADMINISTRATION
3.9 Termination
If termination is due to default of the Employer, the
contractor has the right to be compensated for the
damages that arise from the termination which
include:
Idle equipment and workmen,
Material on site,
Forced demobilization, and
Anticipated profit.
If termination is due to the default of the contractor:
The employer may use contractor’s equipment for
completion of the works as he thinks proper after
termination (FIDIC IV Sub-clause 63.1).
Contractor’s equipment on site are deemed to be the
property of the employer (PPA 2006 Sub-clause 61.1).
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27. 4. OBLIGATION AND RIGHTS OF PARTIES
4.1 Contractor’s obligation
The obligations of the contractor, under the FIDIC 1999
and 2006 MDB Conditions of Contract, may be
generalized as follows:
Completion obligation;
Quality performance obligation;
Timely performance obligation;
Obligation to provide securities, indemnity and
insurance;
Obligation to supply information and notice;
Administrative obligation; and
Obligation upon or after completion.
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28. 4. OBLIGATION AND RIGHTS OF PARTIES
4.2 Employer’s obligation
The obligations of the employer, under the FIDIC 1999
and 2006 MDB Conditions of Contract, may be
generalized as follows:
Payment obligation;
Risk sharing obligation;
Acceptance obligation; and
Other obligations.
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29. 4. OBLIGATION AND RIGHTS OF PARTIES
4.3 Remedial right of the Contractor
The remedial rights of the contractor, can be contractual and
legal remedies.
Contractual remedies
Financial remedies:
oCost;
oProfit;
oFinancing charges; and
oIndemnity.
Extension of time;
Other remedies:
oDeceleration of progress of the Works;
oSuspension; and
oTermination.
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30. 4. OBLIGATION AND RIGHTS OF PARTIES
4.3 Remedial right of the Contractor
Legal remedies
Specific Performance;
Cancellation of Contract;
General damages; and
Other remedies, if any.
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31. 4. OBLIGATION AND RIGHTS OF PARTIES
4.4 Remedial right of the Employer
The remedial rights of the Employer, can be
contractual and legal remedies.
Contractual remedies
Financial remedies:
oDelay damages;
oIndemnity; and
oDeduction of contract price.
Extension of time (in case of defects liability period);
Other remedies:
oSuspension; and
oTermination.
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32. 4. OBLIGATION AND RIGHTS OF PARTIES
4.4 Remedial right of the Employer
Legal remedies
Specific Performance;
Cancellation of Contract;
General damages;
Other remedies, if any;
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