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Faculty of Engineering & the Built Environment
Civil Engineering department
Project & Facility Management PJM721S
Lesson 9 Project Contract Management
Office E3/4/2.14 New Engineering Building +264 61 207 2375
Learning Objectives
• Understand the importance of project procurement contracts
management and the increasing use of outsourcing for information
technology projects
• Describe the work involved in planning procurements for projects,
including determining the proper type of contract to use and preparing a
procurement management plan, statement of work, source selection
criteria, and make-or-buy analysis
• Discuss what is involved in conducting procurements and strategies for
obtaining seller responses, selecting sellers, and awarding contracts
• Understand the process of administering procurements by managing
procurement relationships and monitoring contract performance
• Describe the process of closing procurements
• Discuss types of software available to assist in project procurement
management
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Contract Law
Defn: Contract:
An agreement ,freely entered into, by two or more persons with the intention to create
legally binding obligations
Five requirements have to be met before a valid contract can exist.
• Consensus -The parties must have corresponding intentions regarding the proposed
contract
• Contractual capacity-The parties must have the necessary capacity to able to form a
legally recognized intent for the purpose of concluding a contract
• Legality- The contract must be legal and must not be in contrary to the common law or
any statutory law
• Physical Possibility- The performance that must be delivered i.t.o the contract, must at
the time of conclusion be determined or determinable and also possible
• Formalities- The contract must comply with the formalities as prescribed by law or by
the parties themselves-in writing and must be signed
The law of contracts:
“In the commercial world, you are free to make any bargain you wish, provided that it
does not conflict with the public interest, but when you have made your bargain, you
must carry it out or compensate the other party for the bargain they have lost.”Wright
D.,Contract Law contract formulation,1994
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Contract Law
• A contract is a bargain made between two parties through an offer and an acceptance.
• One party, the seller, makes a promise and the other, the buyer, gives a consideration
for that promise.
• A contract has three functions:
• Define normal performance
• Share risk
• Define mechanisms for dealing with problems
Other essential aspects of a contract:
• Date of coming into effect -It is useful to state the date when the contract comes into
effect.
• Conditions precedent:
• Payment of a proportion of the contract price (to the contractor or supplier, as a
‘down payment’)
• Completion of preliminary work (by a third party, so that the main project work can
begin)
• Receipt of authority, for example from a government department, to proceed with the
project.
• Proper law- To state the legal code under which the contract will be interpreted, should
any dispute arise
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Contract Law
Important elements in contract law:
1. Offer and Acceptance
• Special types of offers and acceptance include:
a) Tenders
b) Bids
c) Unilateral Contracts
d) Letter of intent
2. The consideration
3. Functions of the contract
4. Validity of the contract
5. The sources of mistakes in contracts
6. Duress and undue influence
• Occurs from Violence, dishonor or false imprisonmens
7. Terms and representations
8. Termination of obligations
9. Remedies
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Procurement and Contract Strategy
Types of contract – goods and services supplied
Contracts can be categorized by:
1. Scope of supply
• Supply of materials, equipment or artisan labour
• Profesional or consultancy services
• Complete plant, turnkey, supply or design and build
• Management contracts
• Only manage operations
• Provide advice or consultancy
2. Terms of payment
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Procurement and Contract Strategy
Types of contract – goods and services supplied
Contracts can be categorized by:
1. Scope of supply
2. Terms of payment
• Price (lump-sum, work package, day rates)
• Measurement (BOQ, SOR)
• Cost (Target cost, fixed fee, percentage fee)
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Procurement process
Before choosing the contractors and consultants, the client
must choose an appropriate procurement strategy:
The following steps need to carried out:
1. Defining the roles and responsibilities of the parties
involved and their likely contractual relationship.
2. Choosing appropriate types of contract / procurement
assessment criteria
3. Draw up a contract plan
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Procurement process
The steps of contractor selection are:
1. Tender Advertisement
2. Prequalification of bidders
3. Issue of the invitation to tender
4. Site Inspections / Pre-Tender Meetings
5. Notice to Tenderers
6. Tender Closing
7. Tender assessment
8. Contract negotiation
9. Contract award / signing
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Procurement process
The steps of consultant selection are:
1. Call for Request for Proposals (technical and Financial)
2. Identify the consultants
3. Choose a shortlist / prequalification
4. Submission of Proposals
5. Evaluation of Proposals
6. Contract Negotiations
7. Consultancy contract award / signing
8. Monitor performance
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Contract Administration
• Contract management or contract administration is the management
of contracts made with customers, vendors, partners, or employees.
• Contract management includes negotiating the terms and conditions in
contracts and ensuring compliance with the terms and conditions,
• as well as documenting and agreeing on any changes that may arise
during its implementation or execution.
• It can be summarized as the process of systematically and efficiently
managing
1. contract creation,
2. execution, and
3. analysis
For the purpose of maximizing financial and operational performance and
minimizing risk.
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Contract Administration
• Contract management or contract administration is the management
of contracts made with customers, vendors, partners, or employees.
• Contract management includes negotiating the terms and conditions in
contracts and ensuring compliance with the terms and conditions,
• as well as documenting and agreeing on any changes that may arise
during its implementation or execution.
• It can be summarized as the process of systematically and efficiently
managing
1. contract creation,
2. execution, and
3. analysis
For the purpose of maximizing financial and operational performance and
minimizing risk.
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Contract Administration
Managing the client/contractor interface requires:
1. Appropriate review meetings
2. A document control procedure
3. Structured contacts between client and contractor personnel at all
levels of management
Single project partnering is an approach to building collaborative contacts
between client and contractor.
This requires close working pre-project, during project implementation
and post-project.
Pre-project client and contractor should:
1. Agree the project objectives
2. Identify barriers to effective communication
3. Identify potential sources of conflict
4. Agree collaborative problem-solving procedures
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Contract Administration
During the project there should be mechanisms for:
1. Joint evaluation
2. Problem resolution
3. Continuous improvement
4. Persistent leadership
5. Productivity improvement
Variations are changes to the contract issued by the client. There should
be defined mechanisms for:
1. Issuing variations
2. Acknowledging and accepting variations
3. Valuing variations
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Contract Administration
Interim payment are made against:
• Milestones
• Interim valuations
Completion may take place in several stages:
1. Practical completion
2. Sectional completion
3. Partial possession
4. Defects and making good
5. The final account
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Dispute Resolution
Dispute resolution is the process of resolving disputes
between parties.
Settlement of a claim may be in two parts:
• Interim settlement to allow work to proceed
• Issue of a variation order
Claims can arise from:
• Changes in rates
• Perceived scope changes
• Changes to schedule
• Schedule restraints
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Dispute Resolution
Minimizing potential for claims
• Avoiding ambiguity and misunderstanding through a
formal process of bid clarification
• Identifying significant milestone markers
• Seeking definition of terminology by using accepted
technical terms amplified as necessary into project-
specific language
Alternative Dispute Resolution (ADR) means dispute
resolution by processes:
• which encourage disputants to reach their own solution
and
• in which the primary role of the third-party neutral is to
facilitate the disputants to do so.
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Dispute Resolution
THREE MAIN TYPES OF ADR
Mediation
In the mediation process, the mediator will meet with each of
the parties separately in an informal environment to try to
assist them in focusing on the real issues of the disputes.
Conciliation
In conciliation, there are no private meetings between the
parties and the conciliator but instead the proceedings are
conducted with everyone ‘round the table’.
The Mini-Trial
A mini-trial is a presentation of each case before a panel
comprised of one person of authority from each party and an
appointed neutral who may act as chairman.
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Class Exercise
1. What is meant by the validity of a contract?
2. Discuss in detail the various steps involved in the
procurement of a contractor
3. On what basis are payments made to the supplier /
contractor during the contract execution phase
4. How could claims be minimized?
5. Discuss the three main forms of ADR
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Thank you
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