LPKN Training Center

Lembaga Pengembangan dan Konsultasi Nasional

TRAINING
PROJECT PROCUREMENT & CONTRACT
MANAGEMENT

Online 26-29 July 2023

MAIN TOPICS OF TRAINING

Project Management Fundamental

Project Procurement Management
Contract Management

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CHAPTER 3 – CONTRACT
MANAGEMENT

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Contract Management
❑Principles of Good Contract Management
❑Strategies Contract Management
❑Types of Contract
❑Contract Preparation
 ILUSTRATION of EPC Phase
Contractor of EPC Project
Owner of EPC Project
Project &
Owner Develop Owner Request Owner Award
Engineering Procurement
Project for Proposal EPC
Control
FEED FEED used as
basis of Bidding

Commisioning
Procedures

RFQ/Tender PO/LTPA/Contract PO/LTPA/Contract Construction and Commisioning

Documents Signature Administration Management Procedures

Training

5
Completion
Contractor of EPC Project
Principles of Good Contract Management
 Introduction
 Scope
 Definition
 Importance of contract management
 Activities
Introduction
 This session is intended to cover all those activities associated
with contract management

Up stream activities Down stream activities

Contract Signature

Contract Contract
Business Requirement Contract Contract
Establishmen Administrati
Case Confirmation Performance Closure
t on

Pre-award Contract Post-award Contract

scope
 Our discussion is generic in that its principles
are intended to be applicable to all
contracts, especially to support a Project Completion

Contract in Contract in
Public Procurement Private Procurement

Simple Framework Complexs

.

.
Order Contract Contract
 Definition of Contract Life Cycle Management
Contract Contract Lifecycle Management is
Request
Contracy Close
effective methodical management of a
Contract Tender
Out and Lesson
Learn
Preparation contract from initiation of requirement,
contract award, contract execution,
contract monitoring & controllin until
Tender closing
Delivery & Document
Acceptance Soliciton (RFQ,
ITB,ITT)
The main concerns:
• Optimise Operational
• Maximise Financial Profit
Contract
Execution Bidder’s • Minimise Risks
Response
(Monitoring & (Quotations)
Controlling)

HIGH RETURN ON INVESMENT (ROI)

Quotations
Contract Evaluation
Signature (Technical &
Commercial)

Negotiations

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Importance of contract management
 Why The Contract Management is importance?
To satisfy the parties in the contract

To gain Value For Money

Responsiveness and cooperative

Each party understand the obligation

Disputes avoidance

Minimise surprise

Economic, Efficienct and Effective

Activities
 Pre-award activities
 Post-award activities.
Pre-award activities
1. Preparing the business case and securing approval from authority
2. Assembling the contract management team
3. Developing contract strategy
4. Risk identification, assessment and risk response
5. Developing contract exit strategy
6. Developing a contract management plan
7. Drafting specifications and requirements
8. Establishing the form of contract
9. Establishing the pre-qualification,qualification & tendering
procedures
10. Drafting Invitation To Tender documents
11. Evaluating tenders
12. Negotiation
13. Awarding Contract
Post-award activities
1. Contract changes management
2. Service delivery management
3. Relationship & communication management
4. Contract administration
5. Monitoring & Controlling risks.
6. Purchasing organisation’s performance and effectiveness review
7. Contract Closure
Strategies of Contract Management
Strategies of Contract Management
Topic Contents:
 The Concept of Strategy
 The Level of Strategy (Corporate, Procurement Function, and Contract )
 Developing Contract Strategy
The Concept of Strategy
 What is strategy ? Did we really understand it?

“Strategy is the long term direction of

an organization” (Johnson, Whittington and
Scholes, Exploring Strategy, 2011)
 The View of Strategy

Strategy as Strategy as Strategy as

Position Perspective Plan
To answer the
question about Deals with
To look the
intention and how to
competitive
behaviour in establish
environment
collective direction
contect
The Level Of Strategy
(Banking Industry)
Bank A
Strategy at Network Level : Bank F Bank B
To compete with others
International Bank Bank G Int’l Bank Industry Bank C
Bank F Bank D
Bank E

Strategy at Corporate Level:

Managing integrated Banking
business Business Unit: Bank E Corp Business Unit:
1 3

Business Unit :
2

Strategy at Business Level :

Business strategy could be Function 1 Function 3
leadership, differentiation or
focus Business Unit 2

Function 2

Inventory
Vendor
Functional Level : Management
Warehouse
Operations efficiency and Procurement
lowering cost along its supply
Logistics
chain to increase profit and high Contracting
performance
Purchasing
 Alingnment of Corporate &
Contract Strategy
Corporate
Mission
Goal
Policies

Business Production Business Marketing

Mission Mission
Goal Goal
Policies Policies

Operations Maintenance Procurement Project Sales Area 1 Sales Area 2 Sales Area 3

Contract
Contract Strategy
• The term 'contract strategy' is used to describe the
organizational and contractual policies chosen for the
execution of a specific requirement such as : operations
requirement or project requirement

• The strategy relating to a particular contract should

accord with the organisation’s overall procurement
strategy.
The Objectives of Contract Strategy
Managing Procurement Organisataion
Responsibiities During a Contract

Ensuring the contractors/supplier s meet the

minimum performance criteria, such as
scope, delivery time, quality, quantity, etc

Managing contractual risks for parties involved int

the contracts.

Taking advantage the opportunities in the present and

future

Managing activities with avaialable resources during

contract from initiating to closing
Developing Contract Strategy (1/4)
The areas of contracting strategy in Procurement
No Description
1 Identification the model of contract (simple or complex)
2 Singgle VS Multi sources
3 Method to response Risks
4 Writting Agreement (fixed term vs extending terms)
5 Manage goods/services like end of life or end of support
6 Manage when contract negotiations will occur
7 How Change managements will be performed
8 Lifecycle of product/services
Developing Contract Strategy (2/4)
Considerations in Developing contracting strategy
No Description
1 nature, scale and significance of the need to the organisation
2 The value of requirements
3 Type of specification : input & output
4 Complexity of requirement
5 Market attractiveness
6 Market Capacity & Competitiveness
7 Timescale and phasing of contract
8 Level of stakeholders & vendors understanding to requirement
Developing Contract Strategy (3/4)
Tools in developing contract strategy

Supply Positioning Models

High

Bottle Critical

Impact /
Risks
Routine Leverage

Low

Low Value of Items High

Developing Contract Strategy (4/4)
Tools in developing contract strategy

Buyer & Supplier Relationhip in Contract

Routine item Leverage item Bottle neck item Critical items

Long term
Fixed & Strategic
Spot & Regular partneship
alliences
Order & Joint
contract
Ventures

Degree of relationship
Low High
 Example of Contract Strategy
No Description Constraint : Contract Strategy
Value, Impact Risks Options:
1 Stationery requirements for Small value , low risk Purchase Order with
Goverment Office spot contract
2 Sealing Ring for a Gas Turbine, Small value but high Contract with
operated by Power Plant Industry risk Manufactures
3 Chemical Additives, for a Plastic High Value , Medium Strategic Allinaces or
Petrocmical Plant required for risk, critical for Long Term Price
production operations Contracts
4 Gas Feed stocks for LNG High Risk, High Long term
manufacturer Value and critical for partnership Contract
operations
5 Bio ethanol required for fuel mixing. High Risk, High Joint Ventures
Bio ethanol produce by sugarcane Value and important contract, create new
company, fuel produce by Oil for sustainablity of born company.
Company. organisations
Types of Contracts
Types of Contracts
Topic Contents:
 Understanding Contract
 Types of Contracts
 Contract and Risks
 Contract Selection
Understanding Contract
▪ Contract is a legally enforcable written or oral
agreement between two or more competent parties
that defines a job or service to be performed
(ISM,2008)
▪ The elements of Contract are :
1. Offer & Acceptance
2. Consideration
3. Competent Parties
4. Legality Purpose

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International Contract Forms
 From Commercial Trading Perspective at International
perspective, there are the following types of contract:
➢ Memorandum of Understanding (MOU)- or Pre Contract
➢ Sale/Purchase Contracts for Goods/Services
➢ Agency Contract
➢ Franchise Contract
➢ Licensing Contract
➢ Joint Ventures Contracts
➢ Economic Development Contracts
Sale/Purchase Contracts for Goods/Services
 Trading is the oldest type of transactional trade in the human
history
 Trade of goods/services can be performed through Barter or
Counter trade
 Trade contract of services conducted for Financial and
Engineering Services for example EPC Contract
Type of Contract in Procurement
Goods/Services
• Fixed Price Incentive (saving from target cost) Fee
Fixed Price • Fixed Price Award (bonus based on performance) Fee
• Fixed Price Economic Price Adjustment

Time & • Combine Eelement of Fixed Price and Cost Reimbursable

Material

• Cost Contract (normally in Non Profit Org cost reimburse for cost only)
Cost •
•
Cost Plus Fee
Cost Plus Fixed Fee
Reimbursable •
•
Cost Plus Incentive (saving from target cost) Fee
Cost Plus Award (bonus based on performance) Fee

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Riks & Type of Contract
Contractors
High
Suppliers

RISK

Proc Organisation

Low

Cost
T ime & Materias Fixed Price
Reimbursable
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Contract Selection
 What are consideratios when selecting a contract type?

Incentive Flexibility Risk Sharing

• Adequate incentive • To provide rooms for • To allocate fair risk for

for efficient change in contract all parties in the
performance by • Change management contract
Vendor/Contractor • Systematic, monitor & • Consider Risk
• Information and controll change mitigations (value in
Support from dollar,time,scope etc)
Procurement • Vendor/Contractor to
Organisation to provide protections
vendor/contractor.
Contract Selection
Contractors
High Suppliers

Risk

Proc Organisation

Low

Cost T ime & Materias Fixed Price

Reimbursable

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Other Considerations
What you want to acquire, goods or services

Statement of Works/Specification Availablity

How good efforts and expertise of Procurement

organisation in managing Contractors/Vendors

Market Competition

Industry Standar for selected Contract

Contract Preparation
Preparing the Contract
Topic Contents:
 Stage in Establish Contract
 Contract Documents
 Form of Contract
 General Terms & Conditions of Contract (GTC)
 Special Terms & Conditions of Contract (STC)
 Formulation Process of GTC and STC
 Risk Management Considerations in Drafting GTC &STC
 Stage in Establish a Contract

Fundamental agreement within the

contract parties to establish a contract

Draft Contract Negotiation and

Preparation

Agreement Signature

Implementation of Agreement
Contract Documents
Contracts Arrangement Normally Consists of:
1. Form of Contract
➢ Introduction about Parties
➢ Premis
➢ Definition
➢ Signature
2. General Terms & Conditions
3. Special Terms & Condition
4. Price Schedule
5. Specificatio & Statement of Works
6. Drawing & Other Document

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 FORM of CONTRACT
Title of Agreement
I Introduction • Introductory detail
• Identity of parties
• Background of contract (premis)
II Main Body • Definition Article
• Transactional Article
• Specific Term Article
• General Terms Article
III Closing Section • Closing remarks
• Signature
Supporting Documents • RFQ/ITT/ITB,
• Quotations
• Clarification
• etc
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Principles of International
Form of Contract

Even the most carefully

There is no
drafted documents, still
Perfect
there is assumption that
Contract
can not be expressed

There is no
Contract need to be tailor
structure of
made and thus no
contract that
uniformity between one
is exactly
with another
uniformity

The need of
check list In order to avoid
establish by availablity of legal clause,
parties drafter need to provide
involve in check list
contract
General Terms & Conditions
1. Definition • To avoid differences in interpretation
• The scope, limitations & conditions of application to the hierarchical order of the
2. Application
contract documents
3. Origin of Material • If the buyer has a preference for domestic goods or certain country of origin

4. Use of Contract Document and Information • Protection of misuse of information and leakage of confidential documents

5. Intellectual Property Right • Patents, copyrights, trademarks, service marks

6. Guarantee • Ensure the suplier's obligations will be fulfilled for the guaranteed party

7. Insurance • Who is responsible for insurance charge

8. Payment • How the payment will be provided by buyer

9. Price • Unit Price, Total Amount, VAT, Duty , Logistics Cots etc

10. Personnel • Qualification of personnel will be provided by supplier

11. Progress Report • Progress report of delivery or completion of order

12. Responsibilities of stakeholders • To have clear understanding who responsible for what

13. Schedule • To provide schedule for completion, monitoring & evaluation of the contract completion

14. Additional • Any issue that will impact on contract completion

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Special Terms & Conditions
• Special Terms & Conditions in a contract such as contract change
procedures, payment terms, price differences, penalties and others.
➢ Change in Contract included: Addendum, deletion, correction or similar
change

• Describe what is not included in GTC because usually GtC applies to many
contracts.
➢ Additional and / or explanation of GTC: should be read as an integral part
of the contract GTC

• It is unique and applies to certain contracts or purchase orders. Such special

uniqueness is required to explain in more detail and further technical
explanation than detail the general provisions of GTC

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 Example of Contract Clauses
1. Definition 10. Defects Liablity period 23. Appendices list: 24.Sections:
2. General obligation of 11. Price and Price Structure • Client provided items • Drawing
parties 12. Payment Schedule • Client provided services • Specification
3. Design 13. Taxes and tax exemption • Special equipment • HSE
4. Personnel 14. Patent and other proprietary • Client provided technical • Scope of Work
5. Plant, materials and right information • Time Schedule
equipment 15. Termination • Client’s representative and • Technical Specification
6. Planning-start-up-delay- 16. Risks and Liabilities key personnel
• Permint and Licence
suspension • client’s representatives and
17. Insurance • Administration procedure
7. Variation key personnel
18. Confidentiality
8. Test • Insurance policie
19. Force Majeur
9. Hand Over • Safety Manual
20. Law and Regulation
• QA/QC Manual
21. Assignment
• Bank Guarantees formats
22. Audit
• Report Format
23. Regulator Approval
• Mob Demob Equipment
• Penalty and LD
 Formulation Process of GTC and STC

Input Process to create GTC

Output
& STC

• Identification of all • Criteria Required Product GTC & STC which

stakeholders • Scope of Procurement Goods & compliance to
Services specification , scope and
• Requirement
• Time for completion requirement of end
Documents
• Acceptance Criteria product or services
Tools & Method • Quality requiremet for Goods &
• Questioner Services
• Survey • What is included and not
• Focus Group Discussion included in the scope of
• workshop procurement
• Interview
• Observation

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 1 2 3

Risk Analysis :
Risk
- Qualitative
Identification
- Quantitative Risk Treatment:
• Avoid
• Exploit
• Mitigation
Monitoring and • Transfer
Risk Controlling Risk 5.a • Accept

Management Risk Manage by

Buyer
Consideration in 4
6
Drafting GTC & 5.b
Decide who will
responsible for the risk
STC Formulating GTC &
STC by
Risk Transfer to
(Risk Owner) and
manage the risk
accommodated the
Supplier
transferred risks to
supplier

Contract Document Renew

with risk Procurement Plan
management and Procurement
assembled in GTC & Document
STC

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General Writing Principles
Applicable to Contract Drafting
 Consideration in Creating a Draft of Contract
 Contract Drafting Process
 Importance of Multiple Drafts
 Guidelines for Revising Drafts of Contracts
 Other points
Consideration in Creating a Draft of Contract
No Aspect to be considered Remarks
Attach all documents that have been agreed by buyer and suppliers as reference to the
1 Supporting Document
Contract Document.
Easily accessible for identification, complete, accurate and systematic in structure. The
2 Guideline for Supporting Document supporting documents shall be available for auditing, a clear hierarchy as an integral
part of the contract documents

3 Contract Clause Formulation General Principle and Specific Principles

Guideline for Contract Document it is necessary to pay attention to the alignment of each part of the contract, continuous
4
Arrangement sequence, ease of identification so that it is easily understood by all interested parties

5 Role and Responsibilities The responsible parties are users, Procurement Officer/Contract Office, Management

6 Process for Drafting Contract Preparation → Formulation → Agreement

Documentation Format for Contract Facilitate contract execution/Performance including supervision, control and
7
Document acceptance of contract delivery

Documentation Procedure for

8 Planning → program for managing contract document → implementation → evaluation
Contract Document

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 Contract Drafting Process
• Start with larger points and reconcile all things
1 • Use clear, simple, businesslike language

• Make each clause to do one thing, not more than one

2

• Check to make sure that you have used only one term for one item or person
• Check also to be sure that you have not used one term for several
3 different items or persons

• Re-read the document as a whole

4 • Consult with others
Importance of Multiple Drafts

1st Draft 2nd Draft 3rd Draft 4th Draft

• Creative • Re-writing • Revising • Polishing

• Thorough
• Imperpect
Guidelines for Revising Drafts of Contracts
• Is the content accurately stated and complete
Accuracy • Are key terms, name of parties , etc written correctly?

• Are paragraphs have logical structure

• Are there clear and precise transitions between paragraphs and
Organization sentences?
• Are the structure easy to be understood by other parties

• Are subjects and verbs close together?

Readibility • Is the text generally concise?
• Are the sentence is simple and not too long?

• Is the style still consistent from begining to the end of contract?

Style
Other points
 Avoid use of archaic terms
 Hereunto, Hereinafter, hereby etc
 Avoid use of legal pairs
 Good and sufficient, instead state the measureble indicators
 Avoid Latin word
 Ad hoc (for this), bona fide (real) ,idem, etc
 Use simple and plain english not legalise
 Use the right verb
 Active voice
 Example of right verb
To write/Express Use Example
Obligation must, will, Do it Contractor must provide...
Authorization may The client may....
Prohibition must not/may not The contractor must not ....
Preference ( a should The Supplier should do it
recommendation)

Intention will The client will

No Obligation need not Seller need not to do it...
Contract Approval & Signature
Contract Document Supplier Buyer

Approval &
Signature Process
Contract Draft Contract Draft

Operational
Level
Agree to Draft
Contract

Approval of Approval of
Draft Contract Draft Contract
Approval
Level
Submission for Authority Submission for Authority
Approval Approval

Approved by Authorized
management

Signature

Contract Signature

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END OF CHAPTER 3 – CONTRACT MANAGEMENT

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