Engineering Ethics and Professional

Conduct (SOE 4161)

Contract Management for

Building and Engineering Works

1
 Definitions
• Contract management is that process which involves the negotiation,
analysis and execution of contracts by the parties to ensure
maximised performance and minimised risks.

• Contract management helps in bringing about efficiency, capitalizes

on opportunities of both parties and mitigates on the risks associated
within the contract.

• Contract management starts from stage of preparing Annual Work

Programme and Budget (AWPB)/action plans & budget.

• It provides a measurable control on contract performance starting

from contract signing, delivery of reports & analysis.

2
 Stages of Contract management
1. Contract Development
The procurement phase including evaluation and
contractor selection.

2. Contract Execution
Activities leading up to the final execution of the contract,
including negotiation and approval of the final work.

3. Contract Monitoring
Activities used to track and monitor the contract from the
date of execution to contract closeout.

3
 Qualities of Good Contract
Management
1) Proactive
Actively manage and monitor the contract at all stages, address issues
before they become a big problem.

2) Collaborative
Work collaboratively with the client/contractor as well as other
members of construction team and stakeholders.

3) Focus on Risk
Watch for increases and decreases in risk throughout the contact term,
measure and mitigate them.

4) Communicative
Effective communication with all members of the team.

4
 Contract Monitoring
• Monitoring a contract means any planned,
ongoing or periodic activity aiming at measuring
and ensuring contractor compliance with the
terms and conditions of the contract.

• The level of monitoring should be based on a risk

assessment of the services provided and the
contractor’s ability to deliver those services.

• Every communication with a contractor is an

opportunity to monitor the activity.
5
 The purpose of monitoring
To ensure the contractor:
1. Complies with the terms and conditions of the contract and
applicable laws and regulations;

2. Adheres to the project schedule and making appropriate

progress toward the expected results and outcomes;

3. Provides the quality of services expected;

4. Identifies and resolves potential problems and providing

constructive and timely feedback.

6
 Monitoring activities include:
1) Periodic contractor reporting
Contractors submit progress reports on services
being provided on weekly, monthly or quarterly
basis. This helps to truck degree of progress made.

2) On-site reviews and observations

Interview contractor staff to ascertain their
understanding of program goals, documentation and
records, etc… The results of these reviews should be
compared with contract requirements.

7
 Monitoring activities cont’d …
3) Invoice reviews
Contract managers compare billings and invoices with contract terms
to ensure the costs being charged are accurate and consistent with the
contract requirements.

4) Audit report reviews

Contract managers review any required audit reports to ensure the
contractor takes appropriate and timely corrective action, if required.

5) Periodic contact with contractor

Meetings and other periodic contact with the contractor to review
progress. This facilitates in mitigating problems.

8
 Certification for payment
• Definition
Document verified by an architect, engineer, or owner of a
construction project that the noted work has been completed
and is approved for payment by the main contractor

Interim certificates provide a mechanism for the client to

make payments to the contractor before the works are
complete.

• The value of interim certificates is the value of

the work completed, less any amounts already paid,
less retention.

9
 Variations
• A variation is an alteration to the scope of work in a
construction contract in the form of an addition,
substitution or omission from the original scope.

• Variation may occur if the contract documents do not

properly describe some works to be executed.

• Variations may force alterations to:

- Design
- Quantity
- Quality
- Time.

10
 Bid, Performance &
Payment Bonds
1. Bid Bond (bid guarantee)
• The Bid Bond is intended to keep frivolous
bidders out of the bidding process by assuring
that the successful bidder will enter into the
contract and provide the required performance
and payment bonds.

• If the lowest bidder fails to honour these

commitments, the owner is protected, up to the
amount of the bid bond.
11
2. Performance Bond
• The Performance Bond secures the contractor’s promise to perform
the contract in accordance with its terms and conditions, at the
agreed upon price, and within the time allowed.

3. Payment Bond
• A payment bond is issued as a guarantee that those who are involved
with the construction project will receive their payment from the
principal.
• This protection extends to any workers, subcontractors, supplier.
• It forms a three-way contract between the Owner, the contractor
and the surety.
• It should be enforceable, should one of the parties fail to perform.

12
 Subcontracting
• A subcontractor is a person who is hired by a main
contractor to perform a specific task as part of the
overall project and is normally paid for services
provided.

• In moderate sized construction projects, the

subcontract is a crucial part of the entire project.

• The various issues involved in subcontracting part of

the works can determine the success or the failure of a
project affects the financial risks/loss for either of the
parties.

13
 Reasons for sub contracting
The reasons for subcontracting are:
• when the project is a large one
• specific part of the scope of works
requires specific skills
• employer requirement due to
subcontractors proven experience.

14
 Assignment
• Assignment is the process whereby the benefit of a contract is
transferred from one party to another but the burden of the
contract remains with the original party to the contract.

• For example, the employer (A) may assign a building contract made
between it and the contractor (B) to a third party (C). C would then
be entitled to the right to have the works constructed and the right
to sue the contractor in the event that the works are defective, but
the obligation to pay for the works remains with A.

• Assignment often arises in construction and engineering projects

when transferring the benefit of collateral warranties.

15
 Insolvency
Definition
• A party's inability to pay its debts on time, nor being in the position
of continuing to trade

Employer action (for contractor's insolvency)

• The employer can terminate the contractor's employment at any
time.
• The contractor is required to leave the site and comply with any
reasonable instructions given by the Employer

Contractor action (for employer's insolvency)

• The contractor shall promptly cease all further work, except for
such work as may have been instructed by the Engineer.

16
What happens to business assets during
an insolvency procedure?
• If your company is facing liquidation due
to insolvency, you will have a number of
creditors who you owe money to.

Causes of insolvency
- loss of capital,
- loss of revenue and
- loss of credit.
17
Completion of construction contracts
The completion of construction
projects takes place in stages.
• This is necessary to ensure that all the works
described in the documents have been
carried out as specified.
• That all appropriate payments have been
made.
• That there are no defects and that an
appropriate handover has taken place.

18
 FIDIC Contracts
• Fédération Internationale Des Ingénieurs
Conseils (FIDIC), is an international federation
of consulting engineers.
• It was started in 1913 by France, Belgium and
Switzerland & UK joined in 1949.
• Today its membership is over 60 countries.
• FIDIC is well known for producing standard
form contracts for the construction and
engineering projects.
19
 FIDIC FORMS OF CONTRACTS
FIDIC contract Notes

The (old) Red Book For civil engineering sector

The (old) Yellow Book For mechanical/electrical engineering sector.

The Orange Book for use on turnkey contracts (all disciplines)

The (new) Red Book suitable for contracts that the majority of design rests with the
Employer
The (new) Yellow Book suitable for contracts that the contractor has the majority of the
design responsibility.

The Silver Book The Silver Book is for turnkey projects. This contract places significant
risks on the contractor. The contractor is also responsible for the
majority of the design.

The Pink Book This is an adaptation of The Red Book created to fit the purposes of
Multilateral Development Banks.

The Gold Book This is FIDIC’s first Design-build and operate contract.
20
 Benefits of joining FIDIC

• Access to a suite of FIDIC contracts and

services
• Industry intelligence
• Opportunities for FIDIC’s events on national,
regional and International levels
• Advocacy and stakeholder engagement.

21
Thank you

22