Project Supply and Contract Management

University of Cape Coast

EFFECTIVE CONTRACT MANAGEMENT

Provide an example of a contract

which you think has gone wrong
and what do you think was the cause?
Introduction
A contract is basically defined as an agreement
between two or more parties to perform or not
to perform a specific act or acts for a
consideration, which is enforceable by law.
In order words, contract is an agreement
between two or more parties, each of whom
intends to create one or more legal
obligations between them for a consideration,
entered into voluntarily. The parties’ intention
can be manifested in words or by acts.
 CONTRACT MANAGEMENT

 When does it start?

 When does it end?

 Who’s responsible?
Procurement Contract
 A procurement contract is a contract between
the procurement entity and a supplier,
contractor, or consultant resulting from
procurement proceedings. Public
Procurement Act, 2003(Act 663) as amended.
 A contract may be oral or written but
contracts financed with public funds are
generally made in writing.
Essential elements of contract
1. Offer
 An offer is a proposal made by one person to
another of certain terms of performance with the
intention that it be accepted by such other
person. Thus a Notice of Tender is merely an
invitation to treat and does not tantamount to an
offer.
 The Offeror is the person making the offer and
the Offeree is the person to whom the offer is
made. An offer must be definite and must be
communicated
 Essential elements of contract con’t
2. Acceptance
Acceptance must be unqualified and unconditional. A
conditional acceptance does not legally constitute
acceptance. Acceptance has to be communicated. The
manner which the offer can be accepted can be
prescribed by the Offeror.
3. Capacity to contract
Capacity to contract is defined in terms of age,
competency, corporate authority. The parties to the
contract must have legal rights and contractual
authority to enter into contract.
Payne v Cave (1789)
The defendant made the highest bid for the plaintiff’s
goods at an auction sale, but he withdrew his bid before
the fall of the auctioneer’s hammer. It was held that the
defendant was not bound to purchase the goods. His
bid amounted to an offer which he was entitled to
withdraw at any time before the auctioneer signified
acceptance by knocking down the hammer. Note: The
common law rule laid down in this case has now been
codified in s57(2) Sale of Goods Act 1979.
Fisher v Bell (1960)

A shopkeeper displayed a flick knife with a price tag in

the window. The Restriction of Offensive Weapons Act
1959 made it an offence to ‘offer for sale’a ‘flick knife’.
The shopkeeper was prosecuted in the magistrates’
court but the Justices declined to convict on the basis
that the knife had not, in law, been ‘offered for sale’.
This decision was upheld by the Queen’s Bench
Divisional Court. Lord Parker CJ stated: “It is perfectly
clear that according to the ordinary law of contract the
display of an article with a price on it in a shop window is
merely an invitation to treat. It is in no sense an offer for
sale the acceptance of which constitutes a contract.”
Carlill v Carbolic Smoke Ball Co (1893)

An advert was placed for ‘smoke balls’ to prevent influenza. The

advert offered to pay £100 if anyone contracted influenza after
using the ball. The company deposited £1,000 with the Alliance
Bank to show their sincerity in the matter. The plaintiff bought
one of the balls but contracted influenza. It was held that she
was entitled to recover the £100. The Court of Appeal held that:
(a) the deposit of money showed an intention to be bound,
therefore the advert was an offer;
(b) it was possible to make an offer to the world at large, which is
accepted by anyone who buys a smokeball;
(c) the offer of protection would cover the period of use; and
(d) the buying and using of the smokeball amounted to
acceptance.
 Essential elements of contract con’t

4. Consideration
Consideration basically refers to what is given in
return for a promise. Both parties to a contract
must provide something of value to the other
party or a third party in return for the benefit
he/she receives.
5. Legality
The object of the contract must be legally
acceptable. An illegal contract such as a
contract to kill will not be enforced by law.
Tweddle V Atkinson in year 1861

John Tweddle promised William Guy that he would pay a sum of

money to the child of William Guy, and likewise William Guy promised
John Tweddle that he would pay a sum of money to the child of John
Tweddle, upon the marriage of the two children to each other.
However, William Guy failed to pay the son of John Tweddle, who
then sued his executors for the amount promised. It was held that the
son could not enforce the promise made to his father, as he himself
had not actually given consideration for it – it was his father who had
done so instead. This particular rule of consideration forms the basis
of the doctrine of privity of a contract, that is, only a party to a contract
is permitted to sue upon that contract’s terms. Therefore consideration
from the promisee was indulgent of the claim. Although consideration
must move from the promisee, it does not necessarily have to move to
the promisor. The promisee may provide consideration to a third party,
if this is agreed at the time the parties contracted.
Essential elements of contract con’t

6. Certainty
The parties to the contact must be of the same
mind about what is being offered and what is
being accepted. The essential terms must be
definite and agreed by the parties.
Formation of contract

A contract is usually formed on the basis of offer

and acceptance. In procurement, a
procurement entity or the purchaser usually
takes the first step by inviting tenders or offers
from prospective suppliers.
Interested suppliers may respond to the
invitation by submitting offers or tenders. An
offer made by the prospective supplier may
be accepted by the purchaser. If accepted, an
agreement is reached.
Bid form declaration by supplier

 “We understand that you are not bound to

accept the lowest or any Tender you may
receive”.
Formation of contract con’t
 If the offer is accepted, it must be
positive, unconditional, unequivocal and
unambiguous.
 If the offer is accepted conditionally, it is
considered as a counter offer. Usually,
a counter offer is considered as a
rejection of the original offer unless this
is specifically permitted.
Contract Law in Ghana

According to the Public Procurement Act, 2003

(Act 663) as amended, the law applicable to
contracts in Ghana is the law of the Republic
of Ghana
The essence of the law applicable to contracts is
to address those matters which the buyer and
supplier have not addressed in their contract.
The applicable law is also used to interpret the
contract in case of disputes and fill the gaps in
the contract.
General Principles of Contract
 The terms of contract must be precise, definite,
and without ambiguities
 Standard forms of contracts should be adopted
as much as possible.
 The contract should contain the mode and terms
of payment
 Once the contract is formed, the terms of the
contract must not be significantly changed.
 A clause covering warranty must be captured in
the contract.
General Principles of Contract con’t
 The contract must also contain a liquidated
damages clause.
 Procedures for settlement of disputes must be
stated
 Price variation clauses must be used only in
contracts with long term delivery periods.

 Introduction to contract management

It is the process of systematically and efficiently

managing contract creation, execution and analysis for
maximising operational and financial performance
and minimising risk.
It refers to the management of contracts in order to
ensure that all the parties to the contract comply with
and fulfil the terms and conditions of the contract.
It starts from the time the contract is awarded until the
assignment has been successfully carried out and
accepted by the parties.
 Intro to CM con’t

 Successful contract management is most effective if

upstream or pre-award activities are properly carried out.
 The purchaser or the procurement entity has the
responsibility for managing and administering the
contract.
 The supplier/contractor/consultant/service provider has
the responsibility of performing the contract according to
the terms of the contract.
 Contract management requires coordination and planning
of relevant activities. All relevant documents must be filed
appropriately.
 Introduction to CM con’t

 Contract management must cover the entire

procurement process strategically. It must include
planning, formation, execution, administration and
contract close-out. It goes beyond the basic day to day
administrative activities in the procurement cycle.
 Actual contract management starts when the formal
contract is signed between the purchaser and the
supplier.
 The parties to the contract must work together to
achieve the objectives of the contract.
Importance of Contract management

1. Improvement of financial & operational

performance. If the contract is managed well, it
ensures timely and quality delivery and achieves
value for money.
2. It ensures that corrective action is taken at the
right time when there is a problem during
execution of the contract.
3. It ensures that the terms and conditions of the
contract are adhered to. If the terms and
conditions are adhered to, it improves the contract
performance and relationship.
 Management of contracts requires flexibility on both
sides and a willingness to adapt the terms of the
contract to reflect changing circumstances.
 It is important to recognise that problems are bound
to arise which could not be foreseen when the
contract was awarded.
Importance of Contract management

4. Effective contract management ensures that

records are kept for future references and for audit
purposes.
5. If the contract management process is carried out
successfully, it provides lessons for the
organization which can be used to improve future
contracts.
6. It can also be used as a basis to assess the
performance of the supplier. The supplier’s rating is
communicated to him and that can lead to an
improvement the supplier’s performance in relation
to future contracts.
 Successful Contract Management
Contract management may be described as successful
under the following conditions
1. the arrangements for service delivery continue to be
satisfactory to both parties. Not only must arrangements
be made to favour the purchaser but the supplier’s side
must also be considered so that both parties are able to
realise their objectives for entering into the contract.
2. the expected business benefits are realized.
3. value for money is being achieved. Value for money is
achieved basically if the right quality is obtained at the
right time and at the right price. In order words the
benefits to be realized must commensurate with the
amount of investment made in the project.
 Successful Contract Management con’t

4. the supplier is co-operative and responsive. The supplier is

described as co-orperative in relation to the contract if he
agrees to perform the contract as per the agreed scope,
terms and conditions. The supplier also takes
appropriate action when required to accommodate any
change initiated by the purchaser.
5. the organisation understands its obligations under the
contract. The organization’s obligations may include the
provision the required resources such as finance to enable
the supplier carry out the assignment.
6. there are no disputes. There may be disputes especially in
highly complex and major contracts. If disputes arise, they
must be settled according to the dispute resolution
mechanisms stated in the contract.
Successful Contract Management con’t

7. changes and issues arising from the contract

can be professionally and objectively
discussed. The supplier is given the chance
to offer suggestions to the terms of reference,
specifications or statement of works.
8. efficiency is realized.