Professional Documents
Culture Documents
Contract Management
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Content
6.1. Definition & legal aspects of contract
6.2. Contract delivery systems
6.3. Contract Planning Process
6.4. Contract management Process
6.5. Settlement of claims or dispute
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6.1. Definition & legal aspect of contract
Once a contractor has been selected then it is necessary to come to some
agreement that he should do the work for some consideration (payment)
According to Article 1675 of the Civil Code:
A contract is an agreement whereby two or more persons as between
themselves create, vary or extinguish obligations of a proprietary nature.
a proprietary means trade marked or registered
Agreement of at least two parties with purpose of creating legal
obligation between the parties and capable of being enforced by the court of
law.
Contract = offer + acceptance + consideration.
However, not all agreements or promises are contracts. Some may lack
enforceability at law.
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6.1. Definition & legal aspect of contract…
Elements of Contract
According to Article 1678 ( Elements of Contract) of the Civil Code:
No valid contract shall exist unless
The parties are capable of contracting and give their consent sustainable at
law.
The object of the contract is sufficiently defined and is possible and lawful.
The contract is made in the form prescribed by law.
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i. Natural Persons
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6.1. Definition & legal aspect of contract…
ii. Legal Persons
Legal persons are of two types in terms of determining their coming
Authorities, Agencies …) & their legal capacity to enter into contract &
bind themselves emanates from the Civil Code & the special legal
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The legal capacity of non-public bodies (Plc.'s, Share Companies,
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The following may not have (legal) capacity to enter in
to contract & bind themselves. These are:-
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B. Consent
Consent is a declared will of the individual to enter in to contract. It
is the willingness of the parties to enter in to a legally binding
relation.
Consent of the intended contracting parties decomposes in to :-
Offer; and
Acceptance;
i. Offer
Offer is defined as a proposal expressing the declared willingness of
the offeror to enter in to an agreement, if the offer is accepted.
Offer is a legal process which is a declaration of willingness or intent
to be bound by specific terms set out.
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i. Offer …
o Offer may be made:-
Orally;
In writing;
By sign; By conduct; and
By specially stipulated manner for acceptance.
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ii. Acceptance
Acceptance is a declaration of will to enter in to a legally binding
contract.
By acceptance, a contract shall be completed, where the offeree
accepts the offer without any reservation.
Forms of Acceptance : The following could be forms of acceptance.
Orally;
In writing;
By sign;
By conduct;
As specially stipulated by the offeror
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o Defects in consent
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C. Object of Contract
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C. Object of Contract …..
The object of contract (i.e. both promises & considerations) shall be:-
Sufficiently defined; Possible; Lawful; Not immoral.
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D. Form
Form may mean types of contract.
Form may also mean the making of the contract orally or in writing.
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6.2. Contract delivery systems
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Contract delivery systems
Decisions made in determining kind of contract
Number of contracts
Basis of payment
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Number of Contracts
Single Prime Contract – most common, uses competitive bidding .
Owner has contract w/ A/E & contractor; but A/E & contractor do NOT
have contract
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Major Contract Types (traditional)based on Payment
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Lump Sum Contract
Work must be well defined at bid time.
Fully developed plans and specifications
Cost known at outset and fixed
One price for the whole contract & Contractor selection is easy.
Lump sum includes costs plus overheads and profits
Payment based on a scheduled percentage scheme (monthly progress claims)
The contractor is free to use means and methods to complete the work and
initial target.
Payment to contractor is based on the measure.
Ideal for work where quantities can not be accurately established before
construction starts.
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Unit Price contract
• Time & cost risk (shared)
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Unit Price / Requirement
Adequate breakdown and definition of work units
Adequate drawings.
Payment based on the measurement of the finished works.
Quantity sensitive analysis of unit prices to evaluate total bid price for
potential quantity variation.
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Unit Price / advantages
Suitable for competitive bid (easy to compare tenderers)
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Unit Price / disadvantages
Final cost not known from the beginning (BOQ only is estimated) details of
completed.
Contractors raise prices on certain items and make corresponding reductions
of the prices on other items ,without changing the total amount of the bid)
A tender has no obvious place to put major temporary works costs hence
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Cost Plus (Cost Reimbursement)
1. Actual cost plus a negotiated reimbursement to cover overheads and profit.
5. By using this type of contract the contractor can start work without a clearly
defined project scope, since all costs will be reimbursed and a profit
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Cost Plus(Cost Reimbursement)
8 Suitable for use when amount and type of work not known
10 Every invoice, pay sheet, material record, must be checked by the Engineer
and his auditors as well as the contractor to ensure it was really paid for
work on the contract and it is reimbursable.
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Cost + Percent of Cost
Fee = percentage of the total project cost
Advantages Disadvantages
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Cost + Fixed Fee
Fee = percentage of the original estimated total figure
facility
Includes: Labor, equipment, materials, and administrative costs
FEE = Compensation for expertise
Includes: profit
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Cost + Fixed Fee +Profit-Sharing Clause
Rewards contractors who minimize cost
Percentage of cost under GMP is considered profit and shared with the
contractor
Guaranteed Maximum Price (GMP)
% of profit sharing is specified in contract
Advantages Disadvantages
Provides incentive to the Contractor must absorb any amount over the
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Cost + Fixed Fee + Profit-Sharing Clause
Variation of this type of contract is called a guaranteed maximum price
(GMP).
In this type of contract the contractor is reimbursed at cost with an agreed-
for covering any additional costs within the original project scope
An incentive clause, which specifies that the contractor will receive
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Project Delivery Systems(PDS)
PDS describes how the participants are organized to interact, transforming the
owner’s project goals and objectives into a finished facility
Factors affect the selection of PDS:
Past practices, traditions, and experience;
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Project Delivery Systems
Project delivery systems are basically classified in to two broad areas:
a)Outsourced ; and
b)Force Account
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Project Delivery Systems
Outsourcing
Design/Bid/Build (DBB)
Design/Build (DB)
Turnkey
Turnkey Variations
Construction management
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Project Delivery Systems
Traditional Approach (D-B-B):
“the traditional or standard approach” or “design-bid-build”,
Employer assigns the design and construction phases to two different firms
(consultant/designer and contractor).
Constructing
Designing
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Design -Bid-Build
Three Sequential Phases
1. Design Phase
◦ Owner hires team of architects and engineers to build plans and specs
used to solicit bids
2. Bid Phase
◦ “open process”-any qualified bidder
◦ “select process”-limited number of pre-selected bidders
3. Construction Phase
◦ Winning contractor becomes General Contractor
◦ General Contractor hires sub-contractors
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Advantages of D-B-B Approach
Applicable to a wide range of projects.
Well established and easily understood.
Clearly defined roles for all parties.
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Disadvantages of D-B-B Approach
Innovation not optimized;
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Design-Build Approach
Design-build approach is a project delivery system involving a single contract
between the project employer and a design-build contractor covering both the
design and construction of a project.
The selection can be based on low price or on a set of value criteria (experience,
staff, bonding capacity, etc.).
Design-build provides the owner with a single point of contact for project
responsibilities, eliminating the need to assist in resolving designer-contractor
disputes.
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Design-Build Approach
The employer approaches a contractor with a set of requirements defining what
the employer wants.
The contractor responds with proposals, which will include production as well as
design work.
As an incentive to the contractor, any savings made by completing the project for
a price below the GMP may sometimes be shared between the client & the
contractor.
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Advantage of Design-Build Approach
Innovation and quality improvements through:
- Alternative designs and construction method suited to the contractor’s
capabilities
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Disadvantage of Design-Build Approach
Reduced opportunities for smaller, local construction firms.
Fewer competitors and increased risk may result in higher initial costs.
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Turnkey
Turnkey adds to the design-builder’s responsibilities the operation and/or
maintenance of the completed project.
Design-build-operate-maintain (DBOM)
Design-build-own-operate-transfer(DBOOT)
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Turnkey Variation
Variations on turnkey add financing as a key component.
FDBT (Finance, design, build, transfer)
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Construction Management
CM is of two types:
This distinction determines the contractual approach to CM.
CM At Free/as Agent &
CM At Risk/as Constructor.
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Construction Manager (CM) as Agent
This is a form of CM under which the Construction Manager acts as an agent
of and advisor to, the Owner.
The Owner enters in to multiple trade contracts with the trade contractors &
suppliers.
The Construction Manager is retained on a fee for services basis & acts on
the Owner’s behalf in managing & coordinating the trade contracts in the best
interests of the Owner.
The Owner retains all of the contracting risks inherent in each of the trade
contracts.
It essentially involves the Owner acting as its own general contractor, with
CM At Free
Provides a managing & administering for all phases of a project;
CM At Risk
Good for clients with insufficient staff;
CM At Free
No contractual relationship with trade contractors;
CM At Risk
Duplication of administration & additional paperwork;
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Force Account
When the Project Owners engage themselves to undertake the project, it is
projects are small and places are remote such that reaching them is difficult
When there is a lack of capacity from the private sector to undertake very
large and technologically new projects.
When projects are unattractive to bidders.
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Contract management &
settlement of claims
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P&CM process
P&CM involves three major processes:
1. Contract Planning
3. Contract Management
Procurement Preparation
Tendering
Tender Evaluation & Notice of Acceptance
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Contract Planning Process
Contract Planning Process includes planning of project
Delivery System
Procurement Method
Contract Types
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Contract Management Process
Contract Management is the management of its
Processes,
Stakeholders and their Performances
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Contract Management Process
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Contract Formulation: involves two sub processes:
Negotiation and
Signing of Contract Agreement.
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Contract Administration
Contract Administration: is a process that ensures the successful completion
of the project under consideration with substantial compliance of the Terms of
the Contract.
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Contract Administration cont.….
Determining and understanding the construction components of the project.
Reviewing the Contract Drawings and Technical Specifications
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Contract Administration cont.….
Report Project Status daily and / or periodically and Completions.
Certify qualities of materials, shop drawings, samples, workmanships and
works.
Measure Works, Record Site Potentials and Certify Payments and
Completions
Take off sheet and Bending Schedules are used for Measurement of Works
Method of Measurement is according to standard practices
Mediate Disputes.
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Contract Closing
Closing of Contract looks into issues related to Maintenance Period and
Remedial works, Dealing with Left Over Claims and Disputes, if any, Closing
of Accounts and Completion Certificates.
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Overview of the contract documents and
conditions
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Construction documents
Construction Documents are defined as the written and graphic documents
prepared or assembled by the A/E for communicating the design of the project
and administering the contract for its construction.
2 major groups
1.Bidding Requirements
2.Contract Documents
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Construction documents bidding requirements
Bidding(Tender) document
All of the construction documents issued to bidders before the signing of an owner-contractor agreement.
Invitation to bid
Instruction to bidders
Information to bidders & bid data
Biding Forms
General conditions of contract
Specific condition of contract
Specification
BOQ
Drawings
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Bid Package
Documents available to the contractor and on which he must make a
decision to bid or not
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Construction Agreement Forms
Agreement – legal, binding, written document signed by owner & contractor
Defines the relationships and obligations that exist
By reference it incorporates ALL OTHER CONTRACT DOCUMENTS
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Agreement
is a short document signed by both parties
◦ Time durations
◦ Contract payment
◦ Payment conditions
◦ Signatures
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Specification
Define the material and workmanship quality requirements of a contract
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Specification must satisfy
Technical accuracy and adequacy
Legal enforceability
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Bonds
A bond is a special form of contract whereby one party guarantees the
performance by another party of certain obligations.
Special rules
Utmost Good faith ( you don't disclose all that you know) disclose no reimbursement
Insurable interest
Subrogation (allows the party who pays for a loss suffered by another party to assume the rights of that
other party for the purpose of recovering that loss from a third party)
Indemnity (insured as the same position after loss as it was immediately before happening )
conditions
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Insurance practice in construction industry
Conditions
Who insured
What risk insured
What period is the policy effective over
Types of civil engineering insurance police
Professional indemnity (client has to prove negligence of design)
Contractor all risk (loss or damage what ever cause to contract work during performance of
contract and maintenance period ) all inclusive, with the exceptions of what are called the
excepted risk( meaning not accepted)
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Conditions of the Contract
Define basic rights, responsibilities, and relationships of the parties
involved in the construction process in greater detail than the agreement
agreement, except the activities that may affect the contractual rights of the
other party or the proper execution of the work.
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General conditions of the Contract
Definition and interpretation Measurement
Engineer and Engineers representatives
Provisional sum
Assignments and subcontracting
Contract documents Nominated sub contractor
General obligations Certificates and payments
Labour
Remedies
Material, plant and workmanship
Suspension Special risks
Commencement and delays Release from performance
Defect liability
Alternation, addition and omission
Settlement of disputes
Procedure for claim Notices
Contractors equipment, temporary works and materials
Default of employee
Changes in cost and legislation
01/19/24 Currency and rates of exchange 82
Construction Specification Institute (CSI)
1. Definitions 6. Subcontractors
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Conditions of particular application
Reasons for the particular application
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Supplementary Conditions
General conditions is intended to apply to a relatively broad range of
construction and must be adjusted at times to conform to special conditions a
given project.
• This is accomplished by a section of the specifications called the
supplementary conditions or special conditions.
Common examples of supplementary Conditions:
– Number of contract documents
– Special instructions to the contractor
– Changes in insurance requirements
–Special documentations required by the owner as a condition of final
payment.
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Supplementary Conditions
Additional articles to those in General Conditions:
– Conditions of project location
– Order of procedure
– Times during which the work must proceed
– Owner provided materials or equipment
– Other contracts
– Unusual contract administration requirements
– Early occupancy by the owner
– Time of project completion
– Liquidated damages
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Contract management &
settlement of claims
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Contract administration &Settlement of claims or
dispute resolution mechanisms
Precedence
If the contractor finds a conflict, error, or discrepancy in the contract documents,
In resolving such conflicts the documents give preference in the following order:
1. Agreement
2. Specifications
3. Drawings
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Contract administration &Settlement of
claims or dispute resolution mechanisms
Precedence
Agreement governs over specifications
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Contract administration &Settlement of
claims or dispute resolution mechanisms
Precedence
Within the specifications, the order of precedence:
1. Addenda.
2. Supplementary Conditions (Special Conditions)
3. Instruction to Bidders.
4. General Conditions.
5. Technical Provisions.
6. Standard Specifications.
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Contract administration &Settlement of
claims or dispute resolution mechanisms
Precedence
Within Drawings:
1. Figures govern over scaled dimensions
2. Detail dwgs govern over general drawings
3. Change order dwgs govern over contract drawings
4. Contract dwgs govern over standard dwgs
5. Contract dwgs govern over shop drawings
6. Shop dwgs that deviate substantially from the requirement of the contract
documents must be accompanied by a written change order.
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Contract administration &Settlement of
claims or dispute resolution mechanisms
(Assignment II)
Handling the formal governance of the Claim and dispute to the contract
documentation
Negotiation
Mediation
Conciliation
Adjudication
Arbitration
& Others
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