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Contract Management Training

By Ken Kauffman, PMP Contracts Manager

To provide an overview of the contracting process to give you the ability to determine your relationship to the overall project and the contracts.

Because of the complex nature of the work it is necessary to have a means to implement a project with specific goals and objects to be achieved within a specified time frame and for specific compensation. .OVERVIEW Intent is to provide you with a fundamental understanding as to how engineering and construction companies do business with the client.

Without clearly defined and agreed contracts. . and all sorts of problems can occur. misunderstandings can develop.PURPOSE OF CONTRACTS • A clearly written contract can set out expectations. expectations of owner and contractor fail to match. obligations and save a great deal of confusion. • Contracts are essential business tools for professional trading and business relationships.

. Contracting Parties.ELEMENTS OF A CONTRACT • • • • • Date of Agreement. Signatures. Time to Complete. Consideration.

Some cost-pluscontract can be drafted to set a limit that will be used to restraint the contractor on not to exceed that specified amount. The term plus refers to the profit allowed to be earned by the contractor.CONTRACT TYPES • Lump Sum. Cost + Fee. a cost plus contract refers to a contract when the contractor gets paid for all construction related expenses as previously agreed. It is called a Lump Sum because the contractor is required to submit a total and global price instead of bidding on individual items. and all expenses are likely to be paid. A cost-pluscontract provide a win-win situation for the contractor. • . contract that is normally used in the construction industry to reduce design and contract administration costs. because all risks are basically covered.

These contracts are professionally written and administered by Royal Commission personnel and their Management Services Contractors. The terms of these contracts are fair and reasonable with standard terms and conditions. .CONTRACT TYPES Royal Commission for Jubail and Yanbu.

. consultants. FIDIC publishes international standard forms of contracts for works and for clients. joint ventures and representatives.CONTRACT TYPES FIDIC is the International Federation of Consulting Engineers. subconsultants. together with related materials such as standard pre-qualification forms. Typically organizations without their own standard contract formats will use FIDIC because FIDIC is internationally recognized for well balanced contract formats.

ARAMCO contracts tend to be conservatively written.CONTRACT TYPES ARAMCO has their own contract format that was developed based on their long relationship with the oil and gas industry worldwide. .

That portion of the contract that details what the Owner (ARAMCO) wants the contractor to do.Job Specification. obligations. and Construction (EPC). securities.CONTRACT TYPES Elements of an ARAMCO Contract: • Schedule A – General Terms. notices. Procurement. liability. claims and disputes. terminations. • Contract Scope of Work: Schedule B . finance. relationships. guarantees. performance of work. suspension. warranties. Saudization. . In this case Engineering. warranties. performance guarantees. include definitions. plant. and government relations. are more specialized to the type of work to be accomplished and requirements of the contract. • Schedule H – Special Terms. provision of steam. release of information. superseding effect. insurance.

The project will be divided by plant or process to be installed with points of overlapping Work. .CONTRACT TYPES Large complex projects will include a number of general contracts each with a number of subcontractors. Coordination between the contractors will be as agreed with the owner.

CONTRACT TERMS & CONDITIONS Commitments. a promise to build a building. a promise to pay for the building. a pledge to do or something pledged. For example. .

CONTRACT TERMS & CONDITIONS Payments are based on progress invoices submitted by the Contractor for progress payments. This means the work done in the previous month is calculated as a percentage of the total project. .

In some cases the burden of insurance is shared with the owner. .CONTRACT TERMS & CONDITIONS Insurance is an important aspect to limiting the contractor’s risk. Should an incident causing damage occur on the work site it is important to document and notify the proper authorities so they can contact the insurance company concerned.

CONTRACT TERMS & CONDITIONS Performance Bond these are bonds or letters of credit issued by the contractor’s bank to insure contractor’s performance under the contract will take place as agreed and provide the owner a means to reduce risk. .

CONTRACT TERMS & CONDITIONS Suspension of Work is essentially putting the work or a portion of the work on hold. or because of a change. The reason for a suspension is typically because of a conflict in activities to be accomplished. .

Unforeseen site conditions. and so on. deletion of work. changes in specifications. additional time.CONTRACT TERMS & CONDITIONS Changes. unforeseen site conditions. . Additional time. or deletion of work. Acceleration. Additional work. Changes in specifications. consist of changes to the contract in the form of additional work.

or assertion of rights by a owner against a contractor. Time-Related Disruption/Productivity (usually labor) Terms and Conditions. Resolution of the claims and disputes can be a costly. claims and disputes take many forms and focus on many topics. Changed Work or Variations Delay/Acceleration. such as for a disputed change. disruptive and aggravating process for all parties. compensation. demand. for consideration. or vice versa. we will use the follow the following categories: – – – – Scope of Work. or payment under the terms of a legally binding contract. a “Claim” as “A request. and at other contractual interfaces.” Claims occur between: owners and contractors (prime). contractors and their subcontractors. In the engineering and construction industry. For simplicity of discussion. contractors and (their) vendors.CONTRACT TERMS & CONDITIONS Claims & Disputes. .

entitling the claimant to compensation. . Giving notice to the other party. submitting the claim or dispute as required by the contract.CONTRACT TERMS & CONDITIONS “A construction claim consists of two major parts: (1) the entitlement section. the law to be used in settling a claim or dispute. and (2) the damages section.” Important aspects of disputes and claims are: • Notification. which sets forth the calculations and support for the compensation claimed. The reason is the law of England and Wales is neutral and not in favor of either party. In these particular contracts it is the law of England and Wales. • Governing Law. which typically includes a detailed description of the actions or inactions of the party from whom relief is sought.

CONTRACT TERMS & CONDITIONS Arbitration. • . In choosing arbitration. by agreement of the parties. each party appoints one of the arbitrators. An existing dispute can be referred to arbitration by means of a submission agreement between the parties. the parties insert an arbitration clause in the relevant contract. to one or more arbitrators who make a binding decision on the dispute. Its principal characteristics are: • Arbitration is consensual Arbitration can only take place if both parties have agreed to it. In the case of future disputes arising under a contract. The parties choose the arbitrator(s) A three-member arbitral tribunal. is a procedure in which a dispute is submitted. a party cannot unilaterally withdraw from arbitration. In contrast to mediation. the parties opt for a private dispute resolution procedure instead of going to court. those two persons then agree on the presiding arbitrator.

This allows them to ensure that no party enjoys a home court advantage. Rules allow a party to restrict access to trade secrets or other confidential information that is submitted to the arbitral tribunal or to a confidentiality advisor to the tribunal. • Arbitration is a confidential procedure The arbitration rules specifically protect the confidentiality of the existence of the arbitration. any disclosures made during that procedure. parties are able to choose such important elements as the applicable law. and the award. language and venue of the arbitration.CONTRACT TERMS & CONDITIONS • Arbitration is neutral In addition to their selection of neutrals of appropriate nationality. • The decision of the arbitral tribunal is final and easy to enforce .

The project schedule is one of the most important documents created under the Contract since it determines the rate at work is estimated to be completed. The schedule is complicated in its development and measurement of progress. in simple terms. it is divided into Planed Progress and Actual Progress. .CONTRACT MANNAGEMENT Schedule .

CONTRACT MANAGEMENT Procurement provides the support for the contractor by ordering the necessary material. equipment. and services to support project activities for cost. and quality. . delivery.

CONTRACT MANAGEMENT Quality Assurance aims to prevent defects with a focus on the process used to make the product. It is a proactive quality process. . The goal of Quality Assurance is to improve development and test processes so that defects do not arise when the product is being developed. For example QA will conduct audits to insure compliance with quality procedures.

The goal of Quality Control is to identify defects after a product is developed and before it's released. In most cases Quality Control will inspect the pipe as it is being manufactured to detect defects as early as possible.CONTRACT MANAGEMENT Quality Control aims to identify defects in the finished product. therefore. pipe is purchased for the project and upon delivery of the pipe Quality Control will inspect it to insure it is free from defects. . For example. Quality control. is a reactive process.

it is that they are very difficult to control in a constantly changing work environment. The problem is not that the hazards and risks are unknown. the fatal accident rate is nearly 13 workers per 100. work delays. In the European Union. etc. . additional costs. construction is the most dangerous land-based work sector in Europe.000 as against 5 per 100. site shutdowns. insurance claims.CONTRACT MANAGEMENT Safety. Safety is important for numerous reasons and from a contract administration point of view it is important because of lawsuits.000 for the all sector average. after the fishing industry.

• When a punch list is created. whether people are dealing with a contractor or doing the work themselves.” . because it's easy to miss small details which can be problematic later. and they walk around the job site taking note of anything which is not perfect. • Punch lists can include everything from “clean up scraps on construction site” to “finish trim in an office. Punch lists are very useful for project management. as people walk around the site and note down any issues deficiencies which need to be resolved. people think about the terms of the contract. Punch lists are generated in the final phases of construction.CONTRACT MANAGEMENT Punch Lists is a list of tasks which need to completed to satisfy the terms of a construction contract.

and final payment made. . releases executed. Contracts are administratively closed when all administrative activities have been accomplished. contracts are physically complete when contractors have rendered all services and the owner has accepted all documents. In some contracts administrative closure is only possible after the warranty period. Physical completion of the contract indicates the point that ownership is turned over to the owner and the contractor has completed all punch lists.CONTRACT MANAGEMENT Closeout. and other deliverables. materials. data.