role of contract management in construction industry

8/11/2019 ROLE OF CONTRACT MANAGEMENT IN CONSTRUCTION INDUSTRY

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International Engineering Journal For Research & Development

E-ISSN No: 2349-0721

Volume 1 Issue 2

www.iejrd.in

ROLE OF CONTRACT MANAGEMENT IN CONSTRUCTION INDUSTRY

Mr.Swapnil Khandar1

1P.G.Student PRMCEAM, Badnera

[email protected]

------------------------------------------------------------------------------------------------ABSTRACT :

The luck of all proj ects is closely relates to the ri ght prepared contract. Contracti ng is an integral

part of constructi on proj ects. Managing the contr acts therefore is equally important for the success of any

business process due to rapid increase in mul ti ple contracts. Contract and par tnerships ar e an essential part

of today’s high speed, multilateral business culture both in the public and private sector. Contract

management i s becoming an integral part of project management, and business in general . Many

commercial and project managers are more and more facing contract management issues. Contract

management i s the active management of the relat ionship between the cli ent and the contr actor over the term

of the contract for the provision of goods and servi ces to the agreed standards. Contract ma nagement should

be proporti onate to the value, risk and complexi ty of the contract. In this seminar report i nformati on about

contract management i s gi ven. The constructi ons contr act l if ecycle model and each of the constructi on

contract l if ecycle phases is descri bed. The guidance in thi s report provide us wi th the know -how to manage

the contr act " star t up" , manage the process rela ti ng to unresol ved issues; admini ster the contract effectively;

undertak e performance management; and manage contr act disputes.

Successf ul contract management organi sati ons can increase contr ol , i ncrease effecti veness and

reduce cost and a lso provi de strategic and competit i ve advantages. Good preparat ion, the ri ght contract,

singl e business focus and servi ce deli very management and contr act admi nistr ation factor s essential facto rs

for good contract management. I n Constr ucti on contract li fecycle model, each phase consists of di fferent

elements which are very i mpor tant i n the reali zation of t he purpose related to exact phase. There are several

reasons why or ganisations fail to manage contract successfull y, the chi ef reason for proj ect delays is poor

contract management, therefore proper contr act management is essential

INTRODUCTION :

Contract manage ment is the process that enables both parties to a contract to meet their obligations in

order to deliver the objectives required from the contract. It also involves building a good working relat ionship

between the customer and the service provider. It continues throughout the life of a contract and involves

managing proactively to anticipate future needs as well as reacting to s ituations that arise.One of the key a ims of

contract management is to obtain the services as agreed in the Contract and achieve value for money. This

means optimizing the efficiency, effectiveness and economy of the service or relationship described by the

contract, balancing costs against risks and actively managing the customer and service provider relationship.

Contract management may also involve aiming for continuous improvement in performance over the life of the

contract. The terms and conditions of the contract should include specifications, bill of quantities, contractor

bonus, liquidated damages, time period, means to measure items executed, price ad justmen t procedures ,

variation/change control procedures, foreclosure, termination, and all the other formal mechanisms that enable a




E-ISSN No: 2349-0721

Volume 1 Issue 2

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contract to be implemented. It is vital to build a contract that identifies clearly the obligations of the contractor

and the employer. The contract must be built on a firm formal and legal foundation, it should be flexible, to

accommodate changes, variations etc. Good contract management goes much further than ensuring that the

agreed terms of the contract are being met. There will always be some friction between the different

perspectives and approach of employer and contractor. Contract management is about resolving or reducingsuch friction and achieving the completion of the project as envisaged. Increasingly, many organizations are

departing from traditional methods of contract management and moving towards building constructive

relationships with contractors. Contract management consists of the full and proper fulfillment of roles and

responsibilities.

Importance of Contract Management

Organizations in both the public and private sectors are facing increasing pressure to reduce costs and improve

financial and operational performance. New regulatory requirements, globalization, increases in contract and

complexity have resulted in an increasing recognition of the importance and benefits of effective contract

management. The growing recognition of the need to automate and improve contractual processes and satisfy

increasing compliance and analytical needs has also led to an increase in the adoption of more formal and

structured contract manage ment procedures and an increase in the ava ilability of software applications designed

to address these needs.

It is worthwhile noting that contract management is success ful if:

The arrangements for service delivery continue to be satisfactory to both parties, and the expected

business benefits and value for money are being rea lized.

The expected business benefits and value for money are being achieved.

The supplier is co-operative and responsive.The organization understands its obligations under the contract.

There are no disputes.

There are no surprises .

Efficiencies are being realized.

.

Contracting And Contract Life Cycle

Contracting is a h igh- risk and an increasingly complex business. It involves construction management,

workable organizational structure, and requires capabilities needed for success. Contracting s uccess needs round

– the – clock problem solving acumen .Contract is basically a commitment between two consenting parties,

which, if breaches, remedial protection can be sought under the law by the affected party, since the law

recognizes its performance as the rightful duty. Contract management is essential for good contract in

construction industry, its involved management of contract lifecycle, management of contract start up, contract

administration, control the disputes and proper record keeping.

The basis of developed model is made on construction contract life cycle model which is presented in

Fig. 1.




E-ISSN No: 2349-0721

Volume 1 Issue 2

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Fig. 1. Construction contract lifecycle model

Each of the cons truction contract lifecycle phases have its input and output informat ion. Each phase has its own

purpose:

Contract request phase – different parties of the construction process can us such system and there

are different type of the contracts. In this phase user can is at starting point and have to decide which

type of the contract he needs.

Authoring phase – there are a lot of different contracts, but in most cases it is impossible to use

exactly the same contract few times. At this point user can edit existing contracts so it passes to

existing needs.

Negotiation phase – this phase is related to the presentation of drafts and versions of authorized

contracts for review by other employees, or even vendors/customers/clients , etc.

Approvals phase – in most cases construction contracts are complex and have to be checked by

different stakeholders, even in the same organization. Such reviewers can be authorized staff, different

subject matter experts, legal and appropriate.

Contract execution phase – at this phase have to be prepared and signed final contract.

Obligations phase – the life of a contract and its relationships continue doesn’t stop after signing the

contract. At this moment starts very important post-execution stage with alerts, workflow processes,

risk assessment, spend manage ment, co mpliance monitoring, and advanced reporting metrics.

Compliance phase – reporting capabilities provide organizations with visibility into all contractual

relationships including fully audit for contract.

Contract renewal phase – this phase is related to organizations possibility to capitalize on each and

every renewal opportunity by identifying candidates for renewal, alerting employees to these contracts

in time to make business decisions, and creating new contracts or drafts based on existing ones.

Each phase consists of different elements which are very important in the realization of the purpose related to

exact phase. There are different s tructures for each phase, and those have to be analyzed separately.

Analyze the Contract and Agree the Ser vice Provider's Understanding of the Contract

Identify del iverables and how their achievement will be measured.

Ascertain timeframes, particularly any critical deadlines.

Understand payment arrangements, inc luding links between payments and performance.




E-ISSN No: 2349-0721

Volume 1 Issue 2

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Identify the roles and responsibilities of both parties and allocate responsibilities within the customer

organization.

Confirm agreement with the service provider, especially in relation to any sensitive matters. We

expect that many customers may have certain procedures that must be followed before and during

contract negotiation and prior to execution of contracts. The procedures may vary depending on the

contract terms, the service provider and project type

MANAGEMENT OF CONTRACT START UP

After a contract has been signed there are a number of matters that should be addressed to provide the

foundation for successful contract management. An early step is to ensure that sufficient resources and senior

manage ment support are available to manage the contract. It is equally important to understand both the contract

provisions and contractual relations hips at the outset. The following checklist should assist the contract

management team with providing a better understanding of the contract and can be used as a basis for

developing an effective working relat ionship with the service provider.

ANALYSE THE CONTRACT AND AGREE TH E S ERVICE PROVIDER'S UNDERS TANDING OF

THE CONTRACT

i. Identify del iverables and how their achievement will be measured.

ii. Ascertain timeframes, particularly any critical deadlines.

iii. Understand payment arrangements, including links between payments and performance.

iv. Identify the roles and responsibilities of both parties and allocate responsibilities within the customer

organisation.

v. Confirm agreement with the service provider, especially in relation to any sensitive matters. We

expect that many customers may have certain procedures that must be followed before and during

contract negotiation and prior to execution of contracts. The procedures may vary depending on the

contract terms, the service provider and project type

GAIN AN UNDERS TANDING OF THE BACKGROUND TO THE CONTRACT AND THE

RELATIONSHIP THAT HAS BEEN DEVELOP ED WITH THE S ERVICE PROVIDER

i. Discuss the relationship that has developed with the service provider over the preceding phases of the

contracting cycle.

ii. Meet with the service provider as necessary to further develop the relationship and address issues that

may impinge on effective contract management.

ES TABLIS H ANY REQUIRED S YS TEMS FOR MONITORING AND REPORTING, PROTOCOLS

FOR COMMUNICATION AND RECORDKEEPING ARRANGEMENTS.

i. Establish contract management or data collection systems or processes.

ii. Draw up a monitoring plan or checklist covering key timelines, critical deliverables and performance

reporting priorities.

iii. Develop any procedures or protocols.

iv.

Establish recordkeeping arrangements .




E-ISSN No: 2349-0721

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OBTAIN OR CONFIRM LICENCES IN RELATION TO INTELLECTUAL PROPERTY THAT HAVE

NOT ALREADY BEEN OBTAINED

i. Ensure that relevant confirmation has been obtained.

ii. Confirm all documentation is up-to-date.

iii.

Store evidence of these matters appropriatelyBRIEF ANY TEAM MEMBERS OR S TAKEHOLDERS :

i. Set out meeting ar rangements for the life of the contract.

ii. Confirm stakeholder involve ment and their requirements for information.

iii. Set up and/or brief any co mmittees or working groups .

iv. Brief any members of the contract management team regarding their roles and responsibilities.

MANAGEMENT OF UNRES OLVED ISS UES :

In many instances, not all issues are resolved at the time of contract signature. These need to be

addressed in a timely way during contract start up. These issues can create problems when managing a contract

if not properly dea lt with at the correct time.

In situations where there are issues that have not been fully resolved at contract signature, the contract manager

should:

i. Identify and record any agreements or arrangements made by the parties relating to this when the

contract was negotiated;

ii. Identify and record aspects of the contract which have been potentially left for future development; and

iii. Identify and record aspects of the contract which will be subject to some other process, for example,

third party approvals.

The detailed review of the contract at contract start up may also identify issues that require clarification or

elaboration in the contract. It is important to address any such issues promptly. This may require a contract

variation or exchange of correspondence.

ADMINIS TRATION OF THE CONTRACT :

Good project preparation and the right contract are essential foundations for effective contract

management. The arrangement must also be flexible enough to accommodate change. In long term contracts,

where interdependency between employer and contractor is inevitable, it is in both their interests to make the

relationship work. Contract administration handles the formal governance of the contract and changes to the

contract documentation. All these areas must be managed successfully if the arrangement is t o be a success .

Contract ad ministration, the formal governance of the contract, includes such tasks as contract maintenance and

change control, charges and cost monitoring, variation order process and payment procedures, management

reporting, and so on. The importance of contract administration to the success of the contract, and to the

relationship between employer and contractor, cannot be underestimated. Contract administration is an integral

and important element of contract management and overlaps with monitoring and performance assessment. It

encompasses various activities that need to be completed on a day -to-day basis, including:

i.

Developing and maintaining contact details of key people involved in the contract;ii. Understanding the notice provisions;




E-ISSN No: 2349-0721

Volume 1 Issue 2

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iii. Scheduling meetings and other actions required by the contract delivery and acceptance of the goods or

services;

iv. Making payments ;

v. Maintaining co mplete records for the contract itself; and

vi.

Establishing and maintaining contract documentation.

CONTACT DETAILS :

To assist the overall management of long term contracts, there can be benefits in

maintaining up-to-date records of key personnel, stakeholders, end -users and/or experts and their contact details.

This can assist in facilitating communications between the parties particularly where there are changes in

personnel or where personnel are geographically dispersed.

NOTICE PROVIS IONS :

Although notice provisions are not the most glamorous or exciting of clauses, it is often important to determine

at what time notification is considered to have been given or received. Therefore, the following ess entials of a

notice provision should be well understood:

i. The place at which notice is to (or may) be served;

ii. The method by which it is to (or may) be served;

iii. Where and when service is deemed to take place.

SCHED ULING MEETINGS :

For most contracts, meet ings and particular actions will need to occur at specific times

throughout the life of the contract. It is an important element of contract administration that a schedule of

meetings for parties to the contract, end-users and stakeholders is established in advance, giving the time, place

and purpose of the meeting. The schedule should also list any planned reviews or other key actions.

PAYMENTS :

Contract payments should only be made in accordance with the provisions of the contract. Before

payments are made evidence is required that the appropriate representative of the customer has certified that

goods and services have been received and have met the required standard of performance. It is also important

that payments for satisfactory performance are made in line with the timeframes set out in the contract.

Payments for satisfactory performance should not be delayed because this can undermine the relationship with

the service provider. Payments should be made following receipt of a correctly rendered invoice or other

statement of expenditure. A ll necessary authorisations and approvals should have been obtained prior to making

payment.

CONTRACT DOCUMENTATION :

It is important that the most up-to-date version of the contract incorporating any variations is formally

evidenced in writ ing and appropriately stored. This provides the bas is for making payments and the ongoing

management of the contract. It is likely by the contract management phase that a system for maintaining




E-ISSN No: 2349-0721

Volume 1 Issue 2

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documents for the particular contract will already have been established. If this is not the case, a recordkeeping

system containing all appropriate documentation should be established in accordance with the customer's

recordkeeping policy and practices. If a system already exists it should be reviewed to ensure that it is

appropriate to the contractual arrange ment. Any additional recordkeeping requirements should be identified and

any gaps in documentation addressed.

CONCLUSIONS :

From above study regarding various aspects of contract management following conclusions is drawn

Successful contract management organizations can increase control, increase effectiveness and reduce

cost and also provide strategic and competitive advantages.

Good preparation, the right contract, single business focus and service delivery management an d

contract administration factors es sential factors for good contract management.

In Construction contract lifecycle model, each phase consists of different elements which are very

important in the rea lization of the purpose related to exact phase.

Contract administration is an integral and important element of contract management and overlaps with

monitoring and performance assessment.

There are several reasons why organizations fail to manage contract successfully, the chief reason for

project delays is poor contract management, therefore proper contract management is essential.

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