Contract Management – Principles & Practice

Dafydd Huw Davies
Faced with increasing pressure to reduce their project costs and improve their assets’ financial and operational performance, companies can benefit from effective construction contract management, to get the best from every project.

Successful contract management requires the application of two basic concepts: an understanding of what the binding document actually says (regardless of what was meant) and a willingness, by the contractual parties, to work together to achieve a common goal.

Contract Management is a Continuous Process

Contract management is a process, not an event, and usually starts when a party wants to formally capture an arrangement. It usually ends when the actual contract is no longer required, either through natural conclusion or via termination. Although often viewed as two parts — the ‘pre-contract’ and ‘post-contract’ roles — it’s better to consider contract management as a continuous process. This helps to ensure continuity and avoids a post-contract team having to second-guess the pre-contract team’s thinking.

Contract management is a process, not an event, and usually starts when a party wants to formally capture an arrangement.

Whilst each organisation may broadly follow standard contract templates, it should be borne in mind that the templates can include fundamentally different requirements. FIDIC-based templates, for example, emphasise the independence of the engineer, just as NEC emphasises the impartial project manager. Bespoke contracts, however, may intend that the engineer need not act independently nor impartially, but is an extension of the employer.

A Question of Risk

It therefore pays to read each contract carefully, even where there are perceived similarities. Issues to look out for include the approach to risk. Different countries, and indeed governmental organisations within the same country, can apply differing approaches. Some organisations prefer to share the risk, others require the contractor to absorb a greater proportion of risk even where this is likely to significantly increase project-related costs.

Use the Correct Contract Format and Get the Terminology Right

Having selected the contract format, it’s essential that the correct format is used, to ensure that contracts are fit for purpose. Using a Design and Build model contract to achieve a Design, Build, Operate and Maintain objective can cause problems, as of course the D&B contract will not include the required operational and maintenance provisions. Consistent contract terminology and an understanding of what is actually written in the contract are also important practices. This avoids misunderstandings where parties are working to a common goal, but differently: should ‘day’ mean calendar or working day, and does a working week consist of a five or six-day week?

Consistent contract terminology and an understanding of what is actually written in the contract are also important practices.

Contracts may contain provisions which are time-critical with a set number of days allowed in which to submit a variation application. Using a simple table detailing the clause, obligation and timescale is an invaluable tool here, and a cost effective way to avoid lengthy and expensive arguments when parties seek to rely on ‘time-bar’ provisions.

Overcome Contract Challenges

Every contract inevitably gives rise to challenges, and an informed contract management individual or team will know how to overcome these in the most constructive manner. Faithful+Gould has a successful history of advising on the holistic management of contracts, as well as specific contractual provisions such as performance bonds and the management of claims. We offer a multidisciplinary approach, ensuring that the very best global and practice is tailored to individual needs.

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