CV-457

CV-457
Contract Management
Contract Management

CV-457
CONTRACT MANAGEMENT
Lecture-1 (Week-1)

Engr. Rafia Nawaz

Lecturer Department of Civil Engineering
GIK Institute
Dr.-Ing Abdur Rehman Nasir
Assistant Professor ofEngineering
of Construction Engineering Sciences & Technology, Topi, Swabi KPK
and Management
1
12.09.2019 NIT (SCEE), NUST H-12, Islamabad
 CV-457
Contract Management

Topics to cover

• Contract
• Fundamentals of a contract
• Contract Management
• Contract Management Functions
• Essentials for a Good Contract Management
 CV-457
Contract Management

Contract Agreement
What is
MOU DEED
CV-457
Contract Management
 CV-457
Contract Management

Contract-Definitions

“A written or spoken agreement, especially one concerning employment, sales, or

tenancy, that is intended to be enforceable by law”. –Oxford Dictionary

“A contract is an agreement that can be enforced in court.”

“A contract is an agreement between two or more parties that is legally binding”.

 CV-457
Contract Management

Contract-Definitions
“A voluntary, deliberate, and legally binding agreement between two or more
competent parties. Contracts are usually written but may be spoken or implied,
and generally have to do with employment, sale or lease, or tenancy”.
– Business Dictionary.

“A binding agreement between two or more persons or parties; especially :one

legally enforceable” – Merriam Webster

“A legal document that states and explains a formal agreement between two
different people or groups” – Cambridge Dictionary
 CV-457
Contract Management

Fundamentals of a Contract?
▪ Twelve elements need to be in place before a contract can be considered
legally binding and enforceable.

1. Offer 7. Consideration
2. Acceptance 8. Free Consent
3. Written 9. Certain and Definite
4. Intention to create legal relations 10. Illegal and void contracts
5. Lawful Object 11. Possibility of Performance
6. Legal Capacity 12. Legal Formalities
 CV-457
Contract Management

Fundamentals of a Contract?
1. Offer
A contract is formed when there is a lawful offer by one party to the other party.

2. Acceptance
A contract is formed when the offer is lawfully accepted by the other party.

3. Written
In modern times, it is necessary to have a contract in written form.

4. Intention to create legal relations

The contract does not exist simply because there is an agreement between legal people.
The parties to the agreement must intend to enter into a binding agreement
 CV-457
Contract Management

Fundamentals of a Contract?
5. Lawful Object
The objective of the contract must not be
i. Illegal
ii. Immoral
iii. Opposed to public policy

6. Legal Capacity
Not all people are completely free to enter into a valid contract. Only parties with the
appropriate authority or capacity can make a contract binding and enforceable.
For e.g. Minors, insane, bankrupts etc.
 CV-457
Contract Management

Fundamentals of a Contract?
7. Consideration
Consideration is something of value that is exchanged between the parties.
Consideration can be something of value, goods, or services, though it need not only be
money.
Normally consideration is usually evidenced by the payment of money.

8. Free Consent
The offer and acceptance must be freely consented to by the parties, without any sort of
coercion, undue influence, fraud etc.
All parties must agree to the same terms.
Law recognizes the existence of a contract, if there is a mutual agreement on all the essential
terms.
 CV-457
Contract Management

Fundamentals of a Contract?
10. Certain and Definite
Contract must not be uncertain, vague or indefinite.
Where the agreement is vague and meaning cannot be ascertained, All parties must agree to
the same terms.

11. Illegal and Void Contracts

The law will not enforce all contracts. There are some categories of contracts to be wary of.
Where a contract is illegal, this may affect its enforceability.
Contracts absolutely prohibited by statute will be void, whether the parties know of the
illegality or not.

like committing a crime, or otherwise against the law even if the thing agreed upon isn't a
crime
 CV-457
Contract Management

Fundamentals of a Contract?

12. Possibility of Performance

For a valid contract, it is necessary that it must be capable of being performed.

13. Legal Formalities

There are certain formalities which needs to be fulfilled.

i) Registration of contract and

ii) Its attestation
 CV-457
Contract Management

Contracts
• If “A” says to “B”, ‘I will repair your house’ and “B” makes no promise in return,
there is no agreement.

• If “B” says, ‘I will pay you Rs. 100,000/-, is there an agreement? NO

WHY
▪ Because it takes two to make an agreement. An agreement involves an exchange
of promises or goods. “A” has not yet agreed to accept Rs. 100,000/-for
doing the work. If “A” says, ‘I will accept Rs. 100,000/- there is agreement on
price, but is there a contract?

*A = Hamza
*B = Azam
 CV-457
Contract Management

Contracts

▪ Unless there is agreement on all the essential terms, the law does not
recognize the existence of a contract.

▪ Is there agreement on the actual work to be done to repair the house? It

may be that “A” and “B” know exactly what work is necessary, for example
repair of a leak in the roof. In that event, the actual work to be performed
is agreed and there may be a contract.

*A = Hamza
*B = Azam
 CV-457
Contract Management

Fundamentals of a Contract
• The contract consists of the following express terms:
• “A” will repair “B’s” house
• “B” will pay “A” Rs. 100,000/-
• “A” will accept Rs. 100,000/-

• These terms are said to be ‘express’ because they are the actual
words spoken.

*A = Bilal
*B = Azam
 CV-457
Contract Management

Contracts
▪ The contract includes two types of ‘implied’ terms.
▪ The first type of implied term is implied from the circumstances (what
work is to be done) and

▪ The second category of the implied term is implied by law. Some of the terms that
the law would imply in this contract would be:
– payment will be made upon completion of the work
– the work will be done in a reasonable workmanlike manner
– “B” will give “A” reasonable access to the project site to enable “A” to carry out the
work.

*A = Bilal
*B = Azam
 CV-457
Contract Management

Contracts
▪ “A” and “B” might sign a document (a ‘formal instrument of agreement’) to record
their agreement on the specification and conditions of contract.

▪ This document is also called a contract.

▪ The term ‘contract’ is used to describe the arrangement between

the parties and also the document that evidences the arrangement.

▪ The double use of the term can be confusing. One ‘contract’ may not
be identical to the other.
*A = Bilal
*B = Azam
 CV-457
Contract Management

Significance of a written contract

▪ A written contract usually supersedes all previous agreements, correspondence
and so on.

▪ What is written is what is meant.

▪ Such is the finality of a signed contract that a complete understanding of all the
contract conditions by both parties is essential.
 CV-457
Contract Management

Significance of a written contract

▪ Example:
An independent contractor (Sajeel Ahmed) made a verbal agreement with a
company executive (Hamza Wazir Khan Company) to package and ship their
aluminum windows. The company would send the bills and collect the money. The
verbal agreement between Sajeel and the HWK Company executive included the
understanding that Sajeel would not be responsible for collecting sales tax on the
products sold. Sajeel shipped the products and HWK company collected the money,
but they didn't collect the sales tax. Then they claimed that HWK owed over $25,000
in sales taxes they said he was supposed to collect. The executive had left the
company, so there was no one to confirm the understanding

Sajeel is doomed unless he finds a witness

 CV-457
Contract Management

Classification of Contract
According to validity, the contract is generally classified into two type:

i. Valid Contract
ii. Void Contract

i. Valid Contract
A contract that satisfies the fundamentals, is a valid contract. A valid contract
consists of the following two elements:
a. An agreement
b. The agreement should be enforceable by law Special Conditions of Contracts
 CV-457
Contract Management

Classification of Contract
ii. Void Contract
▪ A contract which is not enforceable by law is called void contract.
▪ The word ‘void’ means ‘not binding in law’
▪ A contract which cannot be enforced by either party is a void contract.

• For e.g. Agreement in restraint of trade, agreement in restraint of marriage,

Agreement in restraint of legal proceedings.

• Reasons of Void Contract

▪ Subsequent impossibility to perform
▪ Subsequent illegality
 CV-457
Contract Management

Classification of Contract
Voidable Contract
▪ An agreement that is enforceable by law at the option of one or more parties.
Voidable contracts are valid until one of the parties decides to cancel or revoke
them for legal reasons.

▪ With a voidable contract, one party can be bound by the contract terms while the
other party has the right to change their mind. In other words, they can cancel the
contract whenever they want

• For e.g. Involving minors

 CV-457
Contract Management

Classification of Contract
Voidable Contract
▪ Certain smartphone apps, categorized as freemium apps, begin as free downloads
but later allow for in-app purchases costing real money.
▪ Freemium apps geared toward children may result in a minor accepting the terms
and conditions associated with gameplay, though these terms may allow for the
later solicitation of in-app purchases. This type of activity led to a lawsuit against
Apple (AAPL) in 2012, which suggested the transactions were part of a voidable
contract.
 CV-457
Contract Management

Agreement
• An understanding or arrangement (usually informal) reached between two or
more parties that is not enforceable by law i.e. non-binding.

• Consideration is also not essential.

• The words contract and agreement are often used to mean the same thing, yet
there are unmistakable differences between the two.
 CV-457
Contract Management

Memorandum of Understanding (MOU)

• A memorandum of understanding (MOU) is an agreement between two or more
parties outlining the terms and details of an understanding, including each parties'
requirements and responsibilities.

• An MOU is a non-binding agreement.

• An MOU is sometimes the first stage for the formation of a formal contract.
 CV-457
Contract Management

DEED
• A deed is a signed legal document that transfers ownership of an asset to a new
owner. Deeds are most commonly used to transfer ownership of assets between
two parties.

• The purpose of a deed is to transfer a title, the legal ownership of a property or

asset, from one person or company to another.

• Example?

• Hammad wants to buy Numeer’s Prius 2010 model. Numeer agrees to sell at a
price of 25,00,000 PKR/-. The transfer is done through a local governing body and
the document that shows the transfer is Deed.
 CV-457
Contract Management

Contract Samples
CV-457
Contract Management
CV-457
Contract Management
CV-457
Contract Management
 CV-457
Contract Management

Contract Management
▪ Contract management is the process that enables 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 relationship between the parties.

▪ It continues throughout the life of a contract and involves managing to

proactively anticipate future needs as well as reacting to situations that arise.
 CV-457
Contract Management

Contract Management
▪ The central aim 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 relationship between the
parties.
▪ Contract management also involve aiming for continuous improvement
in performance over the life of the contract.
 CV-457
Contract Management

What are Contract Management Functions?

 CV-457
Contract Management

Contract Management Functions

All three areas must be managed successfully if the arrangement is to be a success.

 CV-457
Contract Management

Service delivery management

▪ The ability to measure the level of performance and quality and to provide
feedback is critical to successful contract management.

▪ Service delivery management ensures that the service is being delivered as

agreed, to the required level of performance and quality.
 CV-457
Contract Management

Relationship management
▪ Contractual arrangements may commit the party(s) for some time and to varying
degrees of dependency.

▪ It is therefore important to make the relationship work effectively.

▪ Relationship management keeps the relationship between the parties open and
constructive, aiming to resolve or ease tensions and identify problems early.
 CV-457
Contract Management

Contract administration
• While the changes will almost inevitably occur during the period of a contract
and managing these changes is a particularly important activity.

• Contract administration handles the formal governance of the contract and

changes (variations) to the contract.
 CV-457
Contract Management

Functions of contract administrator

− Change Management
− Specification interpretation
− Adherence to Quality
− Warranties
− Subcontractor Management
− Production surveillance
− Waivers
− Contract breach
− Resolution of disputes
− Project Termination
− Payment “Schedule”
− Project Closeout
 CV-457
Contract Management

Essentials for Good Contract Management

 CV-457
Contract Management

Functions of contract administrator

▪ Good preparation
An accurate assessment of needs helps create a clear output-based specification.
Effective evaluation procedures and selection will ensure that the contract is
awarded to the right provider.

▪ Getting the right contract

The contract is the foundation of the relationship. It should include aspects
such as allocation of risk and quality required as well as procedures for
communication and dispute resolution.
 CV-457
Contract Management

Functions of contract administrator

▪ People, skills and continuity
There must be people with the right interpersonal and management skills to
manage these relationships on a peer-to-peer basis and at multiple levels in
the organization. Clear roles and responsibilities should be defined, and the
continuity of key staff should be ensured as far as possible. A contract manager
(or contract management team) should be designated early on in the
procurement process.
▪ Proactivity
Good contract management is not reactive but aims to anticipate and respond
to future needs.
 CV-457
Contract Management

Functions of contract administrator

▪ Service delivery management and contract administration
Effective governance will ensure that the customer gets what is agreed, to the
level of quality required. The performance under the contract must be
monitored to ensure smooth running of the project.

▪ Relationship management
Mutual trust and understanding, openness, and excellent communications are
as important to the success of an arrangement as the fulfilment of the formal
contract terms and conditions.
 CV-457
Contract Management

Functions of contract administrator

▪ Knowledge
Those involved in managing the contract must understand the project fully and
know the contract documentation inside out. This is essential if they are to
understand the implications of problems (or opportunities) over the life of the
contract.
▪ Flexibility
Management of contracts usually requires some flexibility on both sides and a
willingness to adapt the terms of the contract to reflect a rapidly changing
world. Problems are bound to arise that could not be foreseen when the
contract was awarded.
 CV-457
Contract Management

Fundamentals of Contract
Administration for main Stakeholders
 CV-457
Contract Management

Fundamentals of Contract Administration for main Stakeholders

Client
Effective administration of construction contracts is a prerequisite for achieving
successful project outcomes. The fundamentals of contract administration
relevant to the client/owner are:
• to appoint suitable consultants
• to define project scope
• to set the key project objectives of cost, time and quality
• to assist in formulating a project brief
• to select the most appropriate method of project delivery
• to ensure accuracy and completeness of tender documentation
 CV-457
Contract Management

Fundamentals of Contract Administration for main Stakeholders

Client
• to award a contract to the contractor on fair and equitable conditions of the
contract
• to appoint an experienced superintendent for administering the contract
during the construction stage
• to avoid making changes to the design unless knowing the cost and time
impact of such changes
• to pay the contractor strictly in accordance with the contract
• to monitor progress and the use of a contingency
 CV-457
Contract Management

Fundamentals of Contract Administration for main Stakeholders

Client
• to resolve issues as early as possible before they develop into major
problems
• to document actual progress in terms of cost, time, and the use of
resources to be able to defend against a potential claim from the contractor
• to advise the contractor in writing of any deviation from contract
conditions and to request compliance with same within a specified period.
 CV-457
Contract Management

Fundamentals of Contract Administration for main Stakeholders

Contractor
The fundamental aspects of contract administration from the contractor’s point
of view are:
• to execute the project strictly in accordance with the contract conditions
• to award subcontracts on fair and equitable subcontract conditions
• to monitor and control progress of subcontractors
• to pay subcontractors on time
• to minimize overall project time, thus reducing site overheads
 CV-457
Contract Management

Fundamentals of Contract Administration for main Stakeholders

Contractor
• to balance increased direct costs of additional resources on critical
activities, against possible saving in site overheads
• to advise the client early in the project that the program is arranged
to maximize the use of resources and any additional work required
• to allow sufficient time to rearrange activities, acquire additional
resources, perform additional planning, fabrication, etc.
• to manage extensions of time and prolongation of overhead costs
 CV-457
Contract Management

Fundamentals of Contract Administration for main Stakeholders

Contractor
• to recommend to the client not to make any changes to the design
• to document the actual progress compared with a program to identify
areas of progress loss
• to take immediate action on contractor-caused problems and
immediately advise the client of other problems
• to instruct all internal staff to carry out work as specified in the
contract documents, unless written instructions have been given by the
client’s representative.
 CV-457
Contract Management

Concepts of Contract Law

 CV-457
Contract Management

Concepts of Contract Law

▪ It is important to understand that contract law differs from other branches
of law in most jurisdictions.

▪ Common Law generally establishes the rights and duties that the law will
enforce; however, Contract law regulates the relationships between people
who have agreed to do something mutually beneficial.

▪ When disputes arise with contractual agreements, a court of law will refer
to any contract and associated documentation to determine rights and/or
obligations of any of the parties to a contract.
 CV-457
Contract Management

Concepts of Contract Law

▪ A breach of a contract entitles the injured party to seek damages in the form of
money from the person guilty of the breach.

▪ In general, the damages must reflect the cost to put the injured party into the
same position they would have otherwise been in without the breach occurring.

▪ This essentially means that damages cannot provide profit to an injured party.
 CV-457
Contract Management

What is Breach of Contract?

▪ A breach of contract is a failure to fulfill the duties under the contract terms. A
contract can be breached in the following ways:

• − One party does not perform as he or she promised

• − One party does something that makes it impossible for the other party to
perform the duties under the contract
• − One party makes it clear that he or she does not intend to perform the
contract duties
 CV-457
Contract Management

Clarity regarding questions

 CV-457
Contract Management

Jurisdiction and international contracts

▪ Commercial contracts between different companies in different countries can involve
some tricky jurisdictional issues. It's helpful to decide in advance which country's laws
and courts will apply to any contractual disputes. Including governing law clauses and
jurisdiction clauses in your agreements can help to clarify the situation.
 CV-457
Contract Management

What is a governing law?

▪ Cross-border contracts can involve multiple businesses which operate in entirely

different legal systems. Not only might the primary contracting parties be based
in two different countries, but the performance of the contract could take place
in a third country, making matters even more complicated. This makes it all the
more important to decide under which legal system the contract is governed.

▪ A governing clause expressly sets out the choice of law which applies to the
contract, eliminating the need for any preliminary arguments about which
country's laws should be used when interpreting the contract.
 CV-457
Contract Management

What is a jurisdiction clause?

▪ A governing law clause determines which country's laws apply to an

international contract, a jurisdiction clause specifies which country's courts
should hear a dispute. Including a jurisdiction clause helps to avoid preliminary
battles to decide where a case should be litigated or the situation of parallel
litigation in multiple jurisdictions.

▪ Jurisdiction clauses are often 'exclusive' or 'non-exclusive'; the former means

that only the specified courts can hear a case, whereas the latter means that the
specified courts can hear a case but the parties can also litigate in other courts.
 CV-457
Contract Management

Extra resource: Construction Cases

https://www.youtube.com/watch?
v=Z2CLFf3hNFA
 CV-457
Contract Management

Recommended Books (not limited to the following)

✓ Yates, J. K. (2010). Engineering and Construction Law and Contracts. Prentice Hall

✓ Jimmie, H. (2000) Construction Contracts. 2nd Edition, McGraw-Hill

✓ Fisk, E. R. and Reynolds, W. D. (2010). Construction Project Administration. 9th Edition, Prentice
Hall.

✓ Murdoch, J. and Hughes, W. (2008). Construction Contract: Law and Management, Spon Press.

✓ Uher, T. E. and Davenport, P. (2010). Fundamentals of Building Contract Management. UNSW

Press.

✓ Barrie and Paulson. (1992). Professional Construction Management: Including C.M, Design-
Construct, and General Contracting. McGraw-Hill.
 CV-457
Contract Management

Assignment 1-

While considering yourself and a Construction

Contractor as parties to a contract, Draft a contract
for construction of your house that fulfills all the
essentials of a contract.

Deadline: 15 October, 2022

Type: Written, A4 page, Maximum two pages in MS Word format.
20% tolerance for Plagiarism. Same contracts will be marked 0.
 CV-457
Contract Management

Thank you!