The document summarizes tips on contract management from a technical seminar presented by Ms. Lily Heo. It discusses general contract concepts like the definition of a contract and elements of a valid contract. It also covers common contract strategies, cost control methods, pricing approaches, managing variations and claims, performance monitoring, and contract completion. Key points emphasized include understanding all contract terms, establishing clear processes for variations, maintaining open communication, and implementing performance monitoring systems.
To get the best results on a design-build project, the owner’s role is as important as that of the design-builder. View this Slideshare to discover six areas where an owner’s early involvement is critical to realize ultimate success.
CH2M Hill's Mark Alpert presents on team structures for design-build and integrated project delivery methods at the 2013 DBIA Water and Wastewater Conference.
To get the best results on a design-build project, the owner’s role is as important as that of the design-builder. View this Slideshare to discover six areas where an owner’s early involvement is critical to realize ultimate success.
CH2M Hill's Mark Alpert presents on team structures for design-build and integrated project delivery methods at the 2013 DBIA Water and Wastewater Conference.
Consensus Docs: Introduction to Integrated Project Delivery in ConstructionDBL Law
America’s commercial design and construction industry is fragmented, adversarial and inefficient. The industry that depends more than all others upon coordination, cooperation and teamwork among multiple participants is our most adversarial. It is the only major industry that is less productive today than it was in 1964, while other industries have doubled their productivity.
The conventional wisdom is that the way to secure the highest quality at the lowest price is to maximize completion pressure. This leads to selection based on a single criterion – price – which in turn requires that each competitor bid on the same scope and requirements.
Currently an architect prepares drawings and specifications in isolation. The assumption is that the architect will develop the best design absent a dialogue with those responsible for construction. Contractors then submit bids based on the design documents. This step assumes that those documents fully convey the building requirements in an understandable fashion.
Both assumptions are significantly flawed as this process sharply restricts the ability of the project team to communicate. Key decisions are made at the beginning of the project based on limited understanding. In contrast, integration of the project delivery team overcomes these shortcomings in the traditional delivery model, and paves the way for a dramatic elimination of waste.
This was a presentation delivered by Dr Jon Broome, chair of the APM Contracts and Procurements specific interest group (SIG), on Tuesday 7th October. The event was organised and hosted by the APM North East branch and was entitled 'Project contracts and how they support collaborative working'. It was held at the Radisson Blu hotel in Durham.
Project Controls Expo, 18th Nov 2014 - "NEC3 Contracts – Managing Risk and Ch...Project Controls Expo
Traditionally many Contractors (and even Employers) see following the contract or being contractual as a very negative. The NEC3 suite of contracts command a different approach and this session will explore the benefits of being contractual, and how it will help both Parties to manage their project and understand exactly where they both are in terms of liability throughout their project. A key aspect of this is approach to the management of regular revised programmes, which compared to other forms of contract have a much higher contractual significance under NEC3.
Need help choosing your next project delivery method? View a comparison of methods to help make the right decision. Compare Design-Build, Design-Bid-Build, and CM at Risk to learn which is best for your project.
Consensus Docs: Introduction to Integrated Project Delivery in ConstructionDBL Law
America’s commercial design and construction industry is fragmented, adversarial and inefficient. The industry that depends more than all others upon coordination, cooperation and teamwork among multiple participants is our most adversarial. It is the only major industry that is less productive today than it was in 1964, while other industries have doubled their productivity.
The conventional wisdom is that the way to secure the highest quality at the lowest price is to maximize completion pressure. This leads to selection based on a single criterion – price – which in turn requires that each competitor bid on the same scope and requirements.
Currently an architect prepares drawings and specifications in isolation. The assumption is that the architect will develop the best design absent a dialogue with those responsible for construction. Contractors then submit bids based on the design documents. This step assumes that those documents fully convey the building requirements in an understandable fashion.
Both assumptions are significantly flawed as this process sharply restricts the ability of the project team to communicate. Key decisions are made at the beginning of the project based on limited understanding. In contrast, integration of the project delivery team overcomes these shortcomings in the traditional delivery model, and paves the way for a dramatic elimination of waste.
This was a presentation delivered by Dr Jon Broome, chair of the APM Contracts and Procurements specific interest group (SIG), on Tuesday 7th October. The event was organised and hosted by the APM North East branch and was entitled 'Project contracts and how they support collaborative working'. It was held at the Radisson Blu hotel in Durham.
Project Controls Expo, 18th Nov 2014 - "NEC3 Contracts – Managing Risk and Ch...Project Controls Expo
Traditionally many Contractors (and even Employers) see following the contract or being contractual as a very negative. The NEC3 suite of contracts command a different approach and this session will explore the benefits of being contractual, and how it will help both Parties to manage their project and understand exactly where they both are in terms of liability throughout their project. A key aspect of this is approach to the management of regular revised programmes, which compared to other forms of contract have a much higher contractual significance under NEC3.
Need help choosing your next project delivery method? View a comparison of methods to help make the right decision. Compare Design-Build, Design-Bid-Build, and CM at Risk to learn which is best for your project.
Presentation deck (with speaker's notes in downloadable PPTX) used by Kenny Ingram, Global Industry Director at IFS, in his presentation at the 19th annual Future of Utilities conference in London on March 26, 2014.
Cost control and cost reduction are the two most viewed area in finance. Every corporate entity will have a specialized department to study on cost aspects. Apart from finance it is places a great role in micro economics.This presentation will helpful to university students in their study and enhance greater knowledge.
This was a presentation delivered by Robert Langley, partner and head of the construction and engineering team at Muckle LLP, on Tuesday 7th October. The event was organised and hosted by the APM North East branch and was entitled 'Project contracts and how they support collaborative working'. It was held at the Radisson Blu hotel in Durham.
ECI in Sweden - A. Kadefors, KTH Royal Institute of Technology, Stockholm (SE)OECD Governance
Presented at the OECD expert meeting "Construction Risk Management in Infrastructure Procurement: The Loss of Appetite for Fixed-Price Contracts", held on 17 May 2023 at the OECD, Paris and online.
HOW TO SURVIVE CONSTRUCTION PROJECTS DURING TIMES OF ECONOMIC INSANITYBurns White LLC
Following is a slide deck from a presentation given by Burns White Members Chad A. Wissinger and T.H. Lyda to attendees at the National Railroad Construction and Maintenance Association (NRC) annual conference in January about how to survive construction projects during times of economic insanity.
QUESTION :
Taylor’s University is intending to build a branch campus in Kota Kinabalu, Sabah. Based on Taylor’s University plan they require the branch campus to be operational in mid-2019. Your quantity surveying firm, Innovative Cost Consultant Sdn. Bhd., of which you are a director, has been appointed to provide advice on the procurement system and the tendering methods that are to be adopted in carrying out the project.
The management of the University has informed you that the following requirements are of priority:
i) Cost to completion to be within the budget fixed.
ii) Timely delivery of the facility in order to commence operation in mid- 2019.
You are required to prepare a report to Taylor’s University recommending the procurement system and the tendering method to be adopted.
In your report you shall consider the procurement systems commonly used. You shall list out and explain the advantages and disadvantages of each system before making your recommendation.
As for the tendering methods, you shall consider all the three methods; i.e. open, selective and direct negotiation methods. Similarly you are to describe the advantages and disadvantages of each method before arriving at your recommendation.
Your report shall clearly explain your reasons for your recommendations.
Based on the above recommendations you are also required to prepare a simple programme or schedule in a form of bar chart showing the various activities commencing from the confirmation of the procurement system until completion of the project.
2. Contents
• General understanding of contract
• Common Types of Contract Strategies
• Cost Control
• Management of Variation and Claim
• Performance Monitoring
• Contract Completion and Closure
2
3. What is a Contract?
• Established where there are commitments and
agreements to buy and sell.
• Represents the total legal obligations originated
from agreement between parties.
3
4. Elements of Contract
• Mutual assent evidenced by offer and acceptance
• Consideration and form - supported by something of
value in exchange
• Competent parties – must be capable of contracting
but not a minor, mentally ill, intoxicated person
• Legality of purpose
4
5. Why Contract is Important
• Failure to comply with agreed terms will be a
breach of contract
• Either party may claim for damages
• Parties will rely on the contract provisions in the
event that dispute is put to court proceedings
5
6. Contract Documents
• Tender Documents:
• Instructions to Tenderers
• Specification, General / Specific Requirements
• Conditions of Contract
• Contractor’ Proposal
s
• Form of Tender & Appendix
• Bill of Quantities
• Drawings
• Letter of Acceptance / Purchase Order
6
7. Key Terms in a Contract
• Definitions • Contract Prices
• Parties, roles and • Payment Term
responsibilities • Indemnities, warrants
• Specifications / Statement and insurance
of Work • Liquidated Damages
• Confidentiality
• Defect Liability Period
• Intellectual Property Rights
(IPR) • Termination
• Regularity issues eg. • Disputes and Arbitration
safety, environmental, • Force Majeure
statutory requirements
7
8. Factors on Contract Strategy
• Project Timeline
• Price Certainty
• Quality Level
• Design involvement
• Apportionment of Risk
• Project Complexity
• User of Contractor’ Expertise
s
• Involvement of Client
8
9. Contract Strategy
• Turnkey Arrangement (Design & Build)
• One single contractor is appointed to undertake the entire
project including design and provision of equipment and
subsequent implementation
• Advantage :
• Maximum responsibility on one contractor
• Should achieve a timely completion due to total ownership
• Disadvantage :
• No wayout when the work is underway
• Limited choice of supplier base may increase the project cost
9
10. Contract Strategy (cont’
d)
• Traditional Client-coodinated Arrangement
• Client takes responsibility for appointing different specialist
consultants / contractors for individual work packages (eg.
architect, E&M contractor, building contractor etc.)
• Advantage :
• Better value of money
• Maintain high degree of discretion on selecting contractors
• Disadvantage :
• Require a lot of resources to develop specifications and
selection of consultants / contractors
• Require resources for co-ordinating various consultants /
contractors
10
11. Contract Strategy (cont’
d)
• Partial Turnkey
• A hybrid or halfway between full turnkey and client-
coordinatd arrangement
• Client undertakes the responsibility for the organising of a
number of work packages eg. design package, independent
to implementation packages
• Advantage :
• Client owns greater responsibility for particular parts
• Disadvantage :
• With greater responsibility on particular area, client will share
risk of delays and cost overrun
• More effort on managing contractors
11
12. Contract Strategy (cont’
d)
• Management Contracting
• Developed in construction industry
• Client appoints an independent design team called
“Professional Team” led of architect or Project Manager and
the main contractor, “management contractor” for the
organisation and supervision of work for the project
• Advantage :
• Achieve cost economies and save time by integrating design
team and management contractor
• Disadvantage :
• Risk of cost underestimation by the design team
12
13. Cost Control
• Cost control program provides a systematic forum for
reducing the total project cost, without affecting
quality.
• Three aspects of cost control program :
• Cost reduction – effort to trim the costs eg. select
alternative material / method / process
• Cost avoidance – effort to prevent any cost increase via
value analysis, negotiation etc.
• Cost containment – hold costs within certain target limit via
value analysis, negotiation etc.
13
14. Selection of Pricing Method
• Fixed Price Contract :
• Firm fixed price
• Fixed price with adjustment / escalation
• Fixed price with incentive
• Cost Reimbursable Contract :
• Cost plus incentive fee
• Cost sharing
• Time and material contract
• Cost plus fixed fee
14
15. Selection of Pricing Method
(cont’d)
Buyer Risk Contractor Risk
• Fixed Price Contract :
• Firm fixed price
• Fixed price with adjustment / escalation
• Fixed price with incentive
• Cost Reimbursable Contract :
• Cost plus incentive fee
• Cost sharing
• Time and material contract
• Cost plus fixed fee
15
16. Value Analysis / Engineering
• Value Analysis and Value Engineering are used
interchangeably
• Value Analysis focuses on existing products and
systems and co-ordinates all functions in an
operation to reduce overall cost of the production
• Value Engineering analyses the functional
requirements of a new design / product / procedures
used in production in order to achieve the lowest cost
without loss of performance, quality and reliability
16
17. Definition of Variations
• It is an “alteration or modification of the design,
quality or quantity of the Works” specified in the
contract
• A variation has only limited scope and can’ be used
t
to change the essence of the contract
17
18. Cause of Variations
• Inadequate design work
• Changes of mind or requirement after the contract
has been signed
• Change in the method of performing work
• Unforeseen circumstances eg. Change in technology
18
19. Impact of Variation
• Increased cost
• Increased time necessary to complete which will
affect :
• Insurance
• Preliminary
• Additional consultancy cost
• Other expenditure or financial loss eg. Loss of potential
rent.
19
20. Cost of Variation
The cost of the variation may be calculated by :
• An agreed price
• Measurement and valuation by a Quantity Surveyor (QS) in
accordance with Bill of Quantities or Daywork Schedule etc.
20
21. Variation = Claim
Variation is an alteration of the works whether by way
of addition, modification or omission
Claim refers to additional monies sought by the
contractor. It can be made for the payment of
damages due to the buyer’ breach of contract, that
s
constitutes delay completion of work.
21
22. How to Minimise Variation & Claim
• To include a clause covering variations to minimise
the risks associated with cost and time within the
contract
• To ensure a good contract management / project
management system embedded with contract
• To maintain open and clear communication
22
23. How to Deal with Them
• All reasonable efforts should be made to avoid
variations
• Variations should be subject to a clearly defined
procedures within the contract
• When unavoidable, variations and claims should be
negotiated
23
24. Assessment during Negotiation
• What will be the possible outcome ?
• Will the result affect the relationship ?
• Is there sufficient time for the negotiation ?
• Are we clear of what to be achieved ?
24
25. Some Negotiation Techniques
• Opening – avoid making the opening bid
• Testing – get information on counterpart’ position
s
• Active listening
• Use silence to encourage more information flow
• Keep concession for trading / exchanging
• Try avoiding excessive conflict
• Prepare persuasive and logical arguments
• Focus on interests, not positions
• Invest in options for mutual gain
25
26. Negotiator Style
• Logical Negotiator – provides factual arguments
• Relationship Negotiator – focus on relationship
• Intuitive Negotiator – led by intuitions
• Tough Negotiator – result oriented and unconcerned
26
27. Common Dispute Settlement Methods
• Arbitration – both parties present their cases to
arbitrator(s) who will then decide how the case
should be settled. The decision is binding and is
enforceable through the courts. Unlike litigation, the
arbitration cases are private. They can be less costly
and be handled quickly.
27
28. Common Dispute Settlement Methods
(cont’
d)
• Mediation – With the aid of a mediator who will listen
to and question each side to lead a settlement. A
mediator does not make a binding decision.
• Re-negotiation – Both parties place all difference on
the table for re-negotiate the contract
• Litigation – If unable to resolve, a party may sue for
damages suffered as a result of contract breach. It
will then be decided in the courts according to the
law. It will take a lot of time and cost.
28
29. Performance Monitoring
• Establish performance monitoring system in contract
• Define stakeholders
• Agree evaluation criteria and measurement method / key
performance indicator (KPI)
• Determine whether KPI will be associated with incentive
payment
• Agree impact of the measurement result
29
30. Contract Closure
• Contract is considered completed when the required
certificates have been issued by the client :
• Completion Certificate – when the work is substantially
completed
• Taking Over Certificate – when the plant has passed test
• Acceptance Certificate – when the performance test has
been passed
• Final or Maintenance Certificate - at the end of defects
liability period
30
31. Tips to Those who Manage
Contracts
• Clear understanding of contract itself including
specification, performance measures and all
contractual terms
• Access to management information that details how
the contractor is performing
• Establish contract management framework eg.
meeting and reporting interval
• Effective teamwork and relationship management
31
32. Reference
• Study Guide – Project Management and Contract Management
for Purchasing and Supply, The Chartered Institute of
Purchasing & Supply
• The C.P.M. Study Guide, National Association of Purchasing
Management (currently called Institute for Supply Management)
• Building Services Procurement, Christopher Marsh
32