INTRODUCTION TO

CONTRACT
MANAGEMENT

Revision May 2018

 Module 2
 Identifying variety of contracting and
pricing strategies/arrangements
 Identifying standard forms of
contracts used in and outside Eskom
 Identifying factors which influence
type of contract selected and options
within these
Planning contract packages

Once defined, the project scope will need to be packaged into “contract packages”. These contract packages
must be structured with at least the following in mind:
• The capability of contractors in the market to tender and manage the structured packages within a
competitive environment and with reasonable levels of risk exposure;
• The ability of the employer to manage the number of contracts as well as the necessary interfaces between
the packages;
• The identification of work packages for targeted sub-vendor groups;
• The dependencies, timing and management of access for the provision of works and services as well as the
allocation and management of risks to parties best placed to manage mitigations;
Three basic contracting arrangements for
engineering and construction projects
Traditional LMC
(Limited Multiple Contracts)
• The owner directly engages different contractors for designing the scope of work and for construction of the
work in accordance with the design.
EPC
Typically when to use
(Engineer, Procure, Construct)
• The owner directly engages a single contractor for • Scope is well defined
designing the works and for construction of the works • Schedule is not top priority
in accordance with the design.
• Cost control is high priority
• The contractor usually performs all or most of the • Strong owner team is not available
work, but could also subcontract parts of it. • Owner wishes to utilise EPC financing support for
the project

EPCM • Scope is expected to change/grow substantially

(Engineering, Procurement & (e.g. equipment specification is unclear)
Construction Management) • Schedule is top priority (e.g. need to reduce
procurement lead time)
• The owner directly engages a project
manager/contractor as an agent. • Owner wishes to protect intellectual property
• Strong owner team is available
• The project manager facilitates, on behalf of the
• Owner wishes to use preferred contractors
owner, the engagement of design engineer(s) and
construction contractor(s). • There is a risk of project termination/suspension

Contracting arrangements depends on circumstances and environment (socio-economic, funding, programs etc.).
Organisations and even projects may have a hybrid of LMC, EPC and EPCM contracting arrangements.
From Packaging Strategy to Contracting Options

EPCM EPC
(Engineering, Procurement & Construction Management) (Engineer, Procure, Construct/’Turnkey’)

construction management design by develop and design and

management contract employer construct build

Employer’s Risk / Contractor’s Risk/

Flexibility in Changing Scope Incentive to Save Costs

Vague SCOPE Well Defined

(<50%) (>85%)
Pricing options per contract package

Cost Reimbursable Contracts (or Cost Plus) Time and Material (T&M) Contracts (Unit Price Contracts) Fixed Price Contracts
Cost Plus Costs Plus Fixed Price - Economic
Percentage of Costs Plus Fixed Costs Plus Award Incentive Fee Fixed Price Incentive Price Adjustment Firm Fixed Price
Costs (CPPC) Fee (CPFF) Fee (CPAF) (CPIF) Cost Contract (CR) Cost-sharing Contract (CS) Firm (FPI) (FPEPA) (FFP)

 Cost Plus --- Cost --- Rates & Target Cost --- Bill of Quantities --- Lump Sum 

Employer’s Risk / Contractor’s Risk/

Flexibility in Changing Scope Incentive to Save Costs

Vague SCOPE Well Defined

(<50%) (>85%)
Reasons & Benefits of Standard Forms of Contracts

Standard forms of contracts enables:

 tenderers to take into account the allocation of risks already
embedded in such contracts when preparing tenders for
infrastructure projects, and
 tenders to be evaluated by the employer on a comparative basis.
No need for tenderers, who are familiar with a particular form of
contract, to create a price ‘buffer’ for risks related to uncertainty
of how particular issues will be viewed or handled in terms of the
contract.

Verbal (or poorly drafted contracts) + high risk events = the need for deep pockets
Verbal or a poorly drafted agreements result in more disputes, delays, and the costs and frustrations of litigation.
Standard forms of contract provide for a written contract, evolved and improved over decades and often tested
internationally, for the clearest possible terms of exactly what is agreed to, especially as it concerns risk.

Note: Use of standard forms of contract often a requirement e.g. via Construction Industry Development Board
(CIDB), National Treasury’s Standard for Infrastructure Procurement and Delivery Management.
Provisions usually catered for in Standard Forms of
Engineering and Construction Contracts

Standard forms of contract, apart from dealing with rights and duties of
parties to the contract, commonly make provision for matters such as:
• Changes, to works/ services/ goods requirements and when
particular events occur or circumstances arise, after the formation of
a contract;
• Risk allocation for each party and how the contractor is
compensated for risk events for which the contractor is not carrying
the risk;
• Procedures to address, inter alia:
• assessments of amounts due
• defects, acceleration, completion etc.
• determining impact on time and cost
• termination
• resolution of disputes
• Roles of those besides the parties e.g. an agent of the employer.
Providers of standard forms of contract

International: Use of the various conditions of contract in the NEC3 suite is

pre-approved by Eskom with related templates and Z
 NEC Clauses provided via the Commercial website.

New Engineering Contract

Use of the FIDIC suite ‘as-is’ is NOT approved by Eskom. The use of FIDIC
 FIDIC related conditions of contract requires case-by-case legal editing and approval.
Acronym for Federation Internationale des Ingenieurs-Conseil
(French for International Federation of Consulting Engineers)

South African:
 SAICE (GCC)
the South African Institution of Civil Engineering (SAICE) develops, publishes and
maintains the GCC (General Conditions of Contract for Construction Works).

 JBCC
Joint Building Contracts Committee
Note: There are also at times other
forms of standard contracts, monopoly
 CIDB supplier contracts and circumstances
requiring ‘bespoke’ contracts (e.g. self-
Construction Industry Development Board build agreements with customers),
which may be applicable / suitable.
NEC3 ‘books’ containing conditions of contract
‘the black book’ is used where
Works construction works is NOT simple or of
low risk, low cost and short duration (e.g.
for main package of new terminal at
conditions of contract
international airport)
Services
conditions of contract Engineering &
Construction Contract
( ECC )
Supply
conditions of contract
Professional Services Engineering & Construction
Contract Subcontract Supply Contract
( PSC ) ( ECS ) ( SC )
Professional Services Supply Short
Short Contract Contract
( PSSC ) ( SSC )

Term Services Contract Engineering & Construction

( TSC ) Short Contract
( ECSC ) used for
Term Services Short Engineering & Construction simple
Contract Short Subcontract construction
( TSSC ) ( ECSS ) works e.g. for
a carport

Adjudicator’s Contract Framework

( AC ) Contract
( FC )
NEC3 Clauses (ECC conditions of contract)

CORE CLAUSES
1 General Similar for other
2 The Contractor’s main responsibilities NEC3 conditions of
3 Time contract.
4 Testing and Defects
5 Payment
6 Compensation events
7 Title
8 Risks and insurance
9 Termination

DISPUTE RESOLUTION
Option W1 – Used by Eskom
OPTION Y
NOT used by Eskom (related to United Kingdom requirements)

OPTION Z: Additional conditions of contract

Used by Eskom and inserted in Contract Data provided by Employer section of
contract
NEC3 Main Options ( , PSC and TSC)
Only one Main Option must be selected for ECC, PSC and TSC:
MAIN OPTION CLAUSES (ECC)
Option A : Priced contract with activity schedule
Option B : Priced contract with bill of quantities
Option C : Target contract with activity schedule
Option D : Target contract with bill of quantities
Option E : Cost reimbursable contract
Option F : Management contract
MAIN OPTION CLAUSES (PSC)
Option A : Priced contract with activity schedule
Option C : Target contract
Option E : Time based contract
Option G : Term contract
MAIN OPTION CLAUSES (TSC)
Option A : Priced contract with price list
Option C : Target contract with price list
Option E : Cost reimbursable contract
NEC3 Supply Contract conditions of contract (‘red book’) does NOT have
Main Options to choose from.
Choosing NEC3 ECC Main Options

Cost Reimbursable Contracts (or Cost Plus) Time and Material (T&M) Contracts (Unit Price Contracts) Fixed Price Contracts
Cost Plus Costs Plus Fixed Price - Economic
Percentage of Costs Plus Fixed Costs Plus Award Incentive Fee Fixed Price Incentive Price Adjustment Firm Fixed Price
Costs (CPPC) Fee (CPFF) Fee (CPAF) (CPIF) Cost Contract (CR) Cost-sharing Contract (CS) Firm (FPI) (FPEPA) (FFP)

 Cost Plus --- Cost --- Rates & Target Cost --- Bill of Quantities --- Lump Sum 

NEC3 ECC Main Options:

E  D  C  B  A 

EPCM EPC
(Engineering, Procurement & Construction Management) (Engineer, Procure, Construct/’Turnkey’)

construction management design by develop and design and

management contract employer construct build

NEC3 ECC Main Option: F

Employer’s Risk / Contractor’s Risk/

Flexibility in Changing Scope Incentive to Save Costs

Vague SCOPE Well Defined

(<50%) (>85%)
NEC3 Secondary Option Clauses
Any and many of the secondary options may be selected:

ECC PSC TSC SC

Option X1 Yes Option A, B, C & D Yes Option A, C, E & G Yes Option A & C Yes
Price adjustment for inflation

Option X2
Changes in the law
Yes Yes Yes Yes

Option X3
Multiple currencies
Yes Option A & B Yes Option A & G Yes Option A Yes

Option X4
Parent company guarantee Yes Yes Yes Yes
Option X5
Sectional Completion Yes Yes Option G N/A N/A
Option X6
Bonus for early Completion Yes Yes Option G N/A N/A
Option X7
Delay damages
Yes Yes N/A Yes
Option X8
Collateral warranty agreements
N/A Yes N/A N/A
Option X9
Transfer of Rights
N/A Yes N/A N/A

Option X10
Employer’s Agent
N/A Yes N/A N/A
NEC3 Secondary Option Clauses
Any and many of the secondary options may be selected:

ECC PSC TSC SC

Option X11 N/A Yes N/A N/A
Termination by the Employer

Option X12
Partnering
Yes Yes Yes Yes

Option X13
Performance bond
Yes Yes Yes Yes

Option X14
Advanced payment t o Yes N/A N/A Yes
Contractor/Supplier

Option X15
Limitation of Contractor’s Yes N/A N/A N/A
liability for his design to
reasonable skill and care

Option X16
Retention Yes, not for Option F N/A N/A N/A
Option X17
Low performance
Yes N/A Yes Yes
[service/performance] damages

Option X18
Limitation of liability
Yes Yes Yes N/A
Option X19
Task Order
N/A N/A Yes N/A

Option X20
Key Performance Indicators
Yes, not with Option Yes, not with Option Yes, not with Yes, not with Option
X12 X12 Option X12 X12
Typical Relationships with NEC3 (ECC)

Project
Manager
Communication

Legend:
Contract

Contractual
communication
requirements
Other Supervisor
NEC documents via Eskom Intranet and in Hyperwave
(for use and population, NOT editing)

Hyperwave Root Collection \ Eskom \ Technology & Commercial \ Group Commercial \

NEC Templates & Forms via Eskom Intranet and Hyperwave
(for use and population, NOT editing)

Includes
Includes notifications, Eskom’s
certificates etc. standard Z Clauses
NEC conditions of contract
(sometimes for use as learners, NOT copying or editing)

NEC3 ECC conditions of contract

Subject to copyright restrictions, change in Hyperwave location and/or complete removal:

\ Human Resources Division \ Eskom Academy of Learning \ Information Centre
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