APM Presents - Contracts and Procurement: what you must know to get the contract right and to successfully manage the contract

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leading edge
projects consulting ltd
Project Management in Practice :
Some fundamentals of Contracts and
Procurement that you NEED to know.
Actors :
Jon Broome & Anne Holden
Start-up
Quick Intro’s for me Anne and the SIG.
Quick Overview of Procurement
The Situation.
4 Scenarios (if we have time)
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The definition for Procurement
Procurement is the process by which the benefits,
enhanced capabilities, functions / performance or
resources (goods services) required from or by a
project or programme are acquired.
It includes deciding the package structure and, for each
package, the development implementation of the
contracting strategy
contract documents, including the specific scope /
requirement
process and evaluation criteria for selection and
award
leading to the effective management and administration
of the contracts once entered into.
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• There is an overlap as often each stage runs over into the next.
• The process processes within each Stage are not strictly linear.
• The process sub-processes are a framework to Guide thought action OR
• The starting point for the WBS and hence plan for a major procurement.
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projects consulting ltd , 2013
©
The Overall Process

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The Situation
You are the hero of our story – a young Project
Manager with responsibility for delivering a co-generation
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scheme : where power from an
industrial site that would otherwise be wasted is
turned into electricity and sold to the grid.
Anne is the villain of our story – a gnarly, battle
scared, cynical Contractor’s project manager –
and your adversary.
The contract is let under the NEC3 Engineering
Construction Contract, option A : priced contract
with activity schedules using a performance spec.
Scenario 1
The overall project has a budget of £5m and you
are in the final stages of negotiation to award the
contract.
You are still £100k apart on a £4m contract and are
discussing some wording.
The Contractor sent over their latest contract draft
this morning.
You then get a phone call from a security guard at
the Site, saying the Contractor has turned up
wanting access to start work.
What do you do and what do you tell the
security guard ?
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Basic Contract Law
Requirements of a legal contract :
• There is an offer to do something
• There is an acceptance of this offer
• Consideration (normally money)
• Intention to form legal relations
• Capacity of the parties
• Purpose must be legal and not
immoral.
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The Offer (1)
Be clear and certain
Must be communicated before accepted
May be made to :
o A single person
o A group of people
o The world at large
May be revoked any time before acceptance.
With revocation becoming effective when it
is received.
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The Offer (2)
An offer will lapse :
o On the death of either party
o After an agreed or reasonable time.
o Upon rejection or when a counter-offer is
made
An offer must be distinguished from ‘an
invitation to treat’.
A Counter-Offer revokes all previous
offers.
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The Acceptance (1)
A contract is formed at the moment of
acceptance.
Neither party can unilaterally change the
conditions once a contract has been formed.
Thereafter, the parties must perform their
obligations or compensate the other party
for their failure.
For an acceptance to be valid it must be
unconditional, corresponding exactly to the
terms of the offer.
A qualified acceptance is a Counter-Offer.
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The Acceptance (2)
Acceptance :
takes effect from the time it is
communicated or
if by post at the time of posting. It
need not arrive.
can be by telex, telephone or e-mail.
is not normally valid as silence.
may be by conduct, and when
expected it need not be communicated.
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Scenario 2
You are still negotiating over the words in the
contract.
The Contractor is quite happy with the words in the
conditions of contract for Completion : when he
o “has done all the work necessary for the
Employer to use the works and for Others to
do their work.”
You want to pin ‘Completion’ down a bit by stating
clear unambiguous criteria. ‘Nice’ Anne listens and
says she’ll work to that.
What do you do ?
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Key Lessons
A verbal contract isn’t worth the paper it is
written on : written words have precedence
over the spoken in terms of interpretation.
Contra preferentum rule : ambiguity / looseness
is interpreted in the light least favourable to the
party who created it (on a reasonable reading).
‘Begin with the end in mind’. In fact, before you
begin a contract have the end written down
i.e. state clear, unambiguous, ideally
measurable criteria and procedure for
acceptance, handover and closure.
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Scenario 3
You have awarded the contract on a
largely performance based contract with it
being built to British Standards.
‘Nice’ Anne asks for written clarification
on various technical details that your
engineers have expressed a preference
for.
How would you give this and why ?
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Key Lessons
Under the NEC3 form, if you give it in a form which can
be read, then it could be taken as an instruction
changing the Works Information / technical requirement.
This would then be a compensation event as you are
modifying the original contractual bargain.
Further, down the road, if the asset does not perform,
they could say it is because you changed what we had to
build, rather than leaving it to us i.e. liability switches !
So ‘RTFC’ : Read The F****** Contract.
Then understand it and think through the consequences
of your actions.
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Scenario 4
It is getting towards the end of the contract and the
Contractor says he has achieved Completion as he has
done all the work in their activity schedule and this was
their Offer, which was accepted by the Employer.
He wants payment and the Completion certificate in
order not to pay delay damages.
You say that he has not done the installation tests, and
performance tests as per the Works Information (which
you insisted on putting in), so cannot be paid or get the
Completion certificate.
How do you resolve this ?
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Key Lessons
RTFC
Understand the contract : most contracts have a
precedence clause. In the ECC, the Works
Information over-writes the Activity Schedule in
terms of what the Contractor has to do, but the
other way round for payment.
When evaluating a contract payment mechanism /
schedule, be aware of value delivered vs cost and
try to correlate them. Here the Contractor has front
loaded their payment schedule to get paid before
they have incurred the cost.
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Your takeaways
Two per group on individual Post-Its.
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Our Takeaways
Begin with the end in mind : right from the start of
the procurement, which means you need to be
involved.
Create alignment : accept that the other Party has
commercial needs and construct a commercial
framework so that by acting in their best interests, they
are also acting in yours.
RTFC
Understand the contract.
Think through the implications of what you
write (pre-contract) and do (post-contract).
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Contact Details :
Dr Jon Broome
Tel : 07970 428 929 / 01179 093 297
Email : jon@leadingedgeprojects.co.uk
leading edge
setting | projects | up for | success
Anne Holden
Tel : 07966828751
Email : anne.holden@ch2m.com

APM Presents - Contracts and Procurement: what you must know to get the contract right and to successfully manage the contract

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