CSM80013 Procurement, Tendering and Contracts Session 9

CSM80013 Procurement, Tendering, and Contracts - Selected extract of Live Online Lecture Session in Week 9
(Semester 1 2022: SUT-Hawthorn)
CSM80013 Procurement, Tendering

and Contracts (Semester 1, 2022)
Ekambaram, Palaneeswaran
Office: ATC738
Tel: 92148526
Email: pekambaram@swin.edu.au
CSM80013 Procurement, Tendering and Contracts
CSM80013 Component 3: Contracts and Payments in

Procurement – Part 1
CSM80013 – Week 9, Semester 1, 2022
Teaching staff: Palaneeswaran Ekambaram
© A/Prof Palaneeswaran Ekambaram (Tel: +61 3 92148526, Email: pekambaram@swin.edu.au; Office: ATC738);
School of Engineering, Swinburne University of Technology, Hawthorn, Victoria 3122, Australia 1
Parties involved or interested in a typical construction project
Clients/ Owners
Consultants (e.g. Architectural, Structural, Geotechnical, Building Services)
Contractors
Subcontractors, Suppliers, Vendors
Users
Other Stakeholders & Customers/ Non-customers…?
Do you need contracts among all these parties?
CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)
Contract
A contract is an agreement (as exchange of promises) between 2 or

more parties to do or not to do some act (or acts), their intention
being to create a legal relationship which is enforceable by law.
This Photo by Unknown Author is licensed

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under CC BY-SA
Some examples
Elements of a contract
Capacity
Intention
Agreement
Consideration
Operation
Capacity to contract
Age suitability
– i.e. minimum age requirement for contract as per law (e.g. not minor);
Sound mind
– i.e. suitable mental health and/ or mental state to enter into a
contract (e.g. not lunatic or intoxicated/ drugged condition)
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licensed under CC BY-SA-NC under CC BY-NC
Intention(s) for a contract

Intention should refer to create legal relations (i.e. contract should be
legally enforceable). “If it can be demonstrated that no such intention
existed then the courts will not intervene, despite the presence of
both agreement and consideration” (Ashworth 2006)
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Agreement basis for a contract

Agreement is the basis of the contract, which has two key parts:
– Offer; and
– Acceptance.
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Agreement basis for a contract (contd.)

Offer is an expression of willingness to enter into a contract
– i.e. on specific terms and to be bound by it when accepted by the
party (or parties) to whom it is addressed.
Acceptance must be unconditional and properly communicated to
the person who offered.
If an offer is accepted, it will become a binding contract.
– An agreeable offer should be accepted before establishment of
contract.
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Contract Agreement & Consideration(s)

A contract agreement must be supported by a consideration, e.g.:
– payment of money;
– provision of goods;
– performance of work;
– ..?
This Photo by Unknown Author is

This Photo by Unknown Author is licensed
licensed under CC BY-NC
under CC BY
Contract operations
The set of operation elements of a contract includes aspects such as:
– Duress and undue influence(s);
– Void(s)/ voidable(s)/ unenforceable(s);
– Mistake(s);
– Misrepresentation(s)
Breach of contract
Payment arrangements in different procurement contract types

Common types for payment arrangement in different procurement
systems include:
– Fixed price contracts (i.e. lump sum contracts)
– Cost reimbursement contracts
– Incentive contracts
– Other contract types, e.g. indefinite delivery contracts
Can you discuss regarding the suitability of these type(s)?
Contract Type Selection

Contract type selection for a particular project delivery shall be based on:
– Competition
– Requirements (including assessing complexity, urgency
– Price and/ or cost analysis
– Period/ duration
– Contractor capacities
– Any other…?
Fixed price (Lump Sum) contracts

Fixed price contracts provide for a firm price. If fixed-price contract has to
accommodate an adjustable price, it may include: a ceiling price, a target price
(including target cost), or both.
Subtypes include
– Firm-fixed-price (FFP) contracts
– Fixed-price contracts with economic price adjustment (FPEPA)
– Fixed-price incentive contracts
• E.g. Fixed-price incentive fee (FPIF) contracts
Cost reimbursement contracts

Cost reimbursement contracts provide for payment of allowable incurred costs,
to the extent prescribed in the contract. These contracts establish an estimate of total
cost for the purpose of obligating funds and establishing a ceiling that the contractor
may not exceed (except at its own risk) without the approval of the relevant authority
(e.g. procurement/ contract officer).
Subtypes include
– Cost contracts
– Cost-sharing contracts
– Cost-plus-incentive-fee (CPIF) contracts
– Cost-plus-award-fee (CPAF) contracts
– Cost-plus-fixed-fee (CPFF) contracts
Cost reimbursement contracts (contd.)

Cost reimbursement contracts and Cost-plus contracts should be structured
such that:
– Expenditure can be readily audited
– Reimbursable costs are at market or competitively tendered prices
– The end costs of the contract can be continuously tracked and reported at regular
intervals
– Within a short-time after completion of the contract, the final contract amount is
known and can be settled.
Note: Target-cost contracts provide an incentive for contractors to contain costs
(Ref: ISO 10845-1:2010).
Elements of a contract (contd.)
Agreement is the basis of the contract, which has two key parts: (i)
Offer; and (ii) Acceptance. If an offer is accepted, it will become a
binding contract. Offer is an expression of willingness to enter into a
contract (on certain terms and to be bound by it when accepted by
the party to whom it is addressed). An agreeable offer should be
accepted before establishment of contract. Acceptance must be
unconditional and properly communicated to the person who offered.
A contract agreement must be supported by a consideration, e.g.
payment of money, provision of goods, performance of work.
The operation element of contract include aspects such as (a)
duress and undue influence; (b) void/ voidable/ unenforceable; (c)
mistake; (d) misrepresentation
Standard form of contract
Can you identify some standard forms of contract in different

procurement practices?
Standard form of contract
Relevant Contract Forms should be used.

In some cases, Special Amendments to Standard Contract Conditions
may be used.
This Photo by Unknown Author is

licensed under CC BY-SA
A set of common references between typical contract documents
Figure Reference:HB 226.1-2000 Contract toolbox for the construction industry - Tool 1 How clients and contractors ensure success (withdrawn)
Contract Conditions and Tender Documents
Typical aspects/ events under control of contracting parties

Ambiguities/ discrepancies w.r.t. commercial conditions, technical
specifications, drawings, schedules, construction program, industry
standards, codes of practice, government legislations
Non-conformances and defects e.g. noted in the works, materials, contract
administration
Non-compliance of government legislation w.r.t. health and safety,
environment, trade practices, etc.
Accidents (or incidences) e.g. affecting works, employees, public, and
environment
Late completion/ delivery by contractors, late payment by clients, etc.
Variations/ changes of quantities and/ or quality requirements (& scope)
Disputes (or conflicts) w.r.t. quantity, quality, progress, payments, etc.
Professional shortcomings/ issues, errors & omissions, negligence, etc.
Reference:HB 226.1-2000 Contract toolbox for the construction industry - Tool 1 How clients and contractors ensure success (withdrawn)
Typical aspects/ events out of control of contracting parties

Site latent conditions (unknown, volatile)
Natural events/ disasters such as extreme weather (hot/ cold), unusual
rainfall & flooding, landslides, earthquakes, and bushfires
Union/ employee industrial actions such as industrial disputes, strikes,
increase in award rates, etc.
Legislative or statutory changes including environmental, health & safety,
heritage & cultural protections, fair trading, etc.
Economic & financial events such as loan interest rate raise(s), invest
interest rate fluctuations, and currency exchange changes
Late approval from authorities including local government, health and safety
authorities, environmental authorities
Legal proceedings by statutory authorities, stakeholders and public
Client specified/ nominated resources (materials, equipment, sub-
contractors) aspects e.g. w.r.t. availabilities, delays, obsolescence etc.

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CSM80013 Procurement, Tendering, and Contracts - Selected extract of Live Online Lecture Session in Week 9

(Semester 1 2022: SUT-Hawthorn)

CSM80013 Procurement, Tendering

CSM80013 Procurement, Tendering and Contracts

CSM80013 Component 3: Contracts and Payments in

CSM80013 – Week 9, Semester 1, 2022

Teaching staff: Palaneeswaran Ekambaram

Parties involved or interested in a typical construction project

Do you need contracts among all these parties?

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

A contract is an agreement (as exchange of promises) between 2 or

This Photo by Unknown Author is licensed

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

This Photo by Unknown Author is This Photo by Unknown Author is licensed

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Intention(s) for a contract

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Agreement basis for a contract

This Photo by Unknown Author is licensed under CC BY-SA

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Agreement basis for a contract (contd.)

This Photo by Unknown Author is licensed under CC BY-SA-NC

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Contract Agreement & Consideration(s)

This Photo by Unknown Author is

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

This Photo by Unknown Author is licensed under CC BY-SA-NC

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Payment arrangements in different procurement contract types

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Contract Type Selection

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Fixed price (Lump Sum) contracts

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Cost reimbursement contracts

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Cost reimbursement contracts (contd.)

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Elements of a contract (contd.)

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Standard form of contract

Can you identify some standard forms of contract in different

This Photo by Unknown Author is licensed under CC BY-SA-NC

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Standard form of contract

Relevant Contract Forms should be used.

This Photo by Unknown Author is

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

A set of common references between typical contract documents

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Contract Conditions and Tender Documents

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Typical aspects/ events under control of contracting parties

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

Typical aspects/ events out of control of contracting parties

CSM80013 – Session 9, Semester 1, 2022 (E. Palaneeswaran)

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