CONTRACT MANAGEMENT

 

It is a common feature of any country, with civic institutions and business infrastructure, that the transactions, dealings and business operations are regulated by law to stabilize the civic and business activities in the society.

 

The contract related laws are promulgated to regulate the dealings between individuals or organisations.  Before the advent of these laws, business transactions and dealings were governed by customs, conventions and religious practices.  With the advancement of societies and growth of modern civilization, the codification of law dealing with these matters became very essential for smooth operations in the civic and business areas.  Accordingly, various laws were enacted relating to Contracts between two or more parties.

 

This process started with the enactment of Indian Contract Act - IX - 1872.  Then onwards, series of laws came into existence, such as Sales of Goods Act, 1930, Contract of Bailment and Pledge, Contract of Agency and Indian Partnership Act, 1932, etc.

 

In the process, the idea of contract was given proper shape and meaning by Indian Contract Act, 1872.  Basically, the Contract is defined as an agreement enforceable in law.  But the agreement between two parties to come into existence, there must be an enquiry from one party for products or services and the proposal by the other party to provide the same.  Such offer when accepted by the first party becomes an agreement.  This agreement can become a valid contract, if following conditions are met with.

 

i)          Free consent of both the parties;

ii)         Parties competent as per law to sign a contract;

iii)        The consideration is lawful;

iv)        The objective of the agreement is within legal bounds;

v)         The agreement is not declared void on valid grounds;

vi)        The agreement complies with the provisions of law regarding attestation and registration.

 

Above conditions are clearly provided in Indian Contract Act, 1872.  These issues need to be discussed when a detailed review is taken up of concerned provisions in a separate article on Indian Contract, 1872.

 

Before proceeding further, it is necessary to establish relationship between Project Management as a whole and Contract Management in particular.  The Project Management concerns itself with every aspect of Project Execution from the award to completion and even commissioning within the stipulated time and budget with men and material, equipment and financial resources getting utilised in the most optimum manner.  Whereas Contract Management looks at all these issues from the angle of contractual commitment made by the contractor to the client through the contract document and the issues arising out of failure of contractor or the client to sustain those promises made under the contract.  So Project Management and Contract Management though concern themselves with success or failure of the project, the role of Contract Management is clearly laid out to look after the legal and contractual commitments made by both the parties to each other.

 

The specific role of Contract Management can be identified at every stage of project execution from tendering to final settlement.  The overview of this role can be carried out at following stages of project execution business.

 

A)        During Tendering Stage

1.         Understanding the legal commitment entered by contractor during tendering for a project, by accepting the contract if awarded.

 

2.         Studying the detailed clauses of contract document issued by client, including general, special and particular conditions of contract.

 

3.         Appreciating the impact of contract clauses on satisfactory execution of the project along with legal and financial implications.

 

4.         Responding to financial aspects of tendering processes, such as earnest money and bearing the cost of tender preparation.

 

5.         Obtaining necessary clarification for doubts about contract conditions during pre-bid meeting or correspondence with the client.

 

6.         Inquiring about project site conditions and obtaining adequate information about ground conditions and geological data.

 

B)        On Award of Contract Conditions and Geological Data.

 

1.         Agreeing to various terms and conditions of contract by careful scrutiny on award of contract.

 

2.         Attending to financial issues such as release of performance security and Bank guarantee if mobilisation advance is released.

           

3.         Obtaining suitable EAR/CAR insurance policy as stipulated in the contract with additional features to protect its interests.

 

4.         Submitting detailed planning schedule to the client as per contract conditions, covering planning of men, material and equipment.

 

5.         Conducting post-award site investigation to check any site variation with respect to data provided by client to ascertain possibility of any genuine claim due to changed conditions.

 

6.         Raising suitable invoices for release of mobilisation advance by client  against suitable bank guarantee.

 

C)        During Execution Phase

 

1.         Monitoring the progress of project and reporting to the client in the agreed format every week/fortnight/month.

 

2.         Preparing monthly billing/Invoicing based on correct measurement of work as per correct rules of measurement and unit rates.

 

3.         Noticing any variation in the quantity and scope of work during bill preparation and modifying the invoiced amount accordingly.

 

4.         Recording any additional or extra over and above the basic scope of work and timely raising the matter with client for rate agreement and billing

 

5.         Raising claims based on client authorised changes made in the scope of contract after obtaining the written amendment.

 

6.         Providing detailed work-out and back-up documentation to substantiate the claim to obtain client's acceptance.

 

E)        On Completion of Project

 

1.         Reconciling all certified and uncertified invoices during for final billing after checking for any missed out work during earlier billing.

2.         Settling claims arising out of all approved and agreed changes and variations which are not displayed by client.

 

3.         Preparing presentation to be made to Dispute Resolution Boards and/ or Arbitration to defend and settle claims made during execution which were not disputed by client.

 

If the role of Contract Management is now clear, vis-a-vis Project Management, this needs to be converted into a detailed activity which must be understood by Contract Management department.  This is very important since role of Contract Management slightly overlaps with Project Management function. In a small or medium contract, even Project Manger can manage this contract management function, though in bigger projects, Contract Manager/Engineer will be necessary.

Before explaining the Contract Management functions in greater details, it may be noted that, Contract Management is dependent upon carefully recorded facts during execution of the project from start to finish.  This data base facts recorded by maintaining Project Diary serve as solid base for smooth Contract Management.  Following check-points are normally observed to create this data base with reference to external and internal issues, along with interaction taking place with client, suppliers and contractors. 

 

A         External Issues

            i)          Weather record including rain, temperature, humidity, fog and any other unusual natural conditions, on any particular day.

 

            ii)         Record of any adverse news or events likely to affect the project, such as strikes, riots or hostilities and acts of God, such as earthquakes, landslides, typhoon or any other catastrophe.

 

B)        Internal Issues

            i)          Record of work force with main contractors and sub-contractors everyday.

 

            ii)         Record of major plant and equipment at site, owned, hired or provided by sub-contractors.

 

            iii)        Record of main activities, such as, concrete and steel work done everyday.

            iv)        Notes on unexpected ground conditions at site and action taken to overcome the same.

 

            v)         Records of accidents - major or minor - including details of injury and damage to the property.

 

            vi)        Notes on correspondence with insurers and any claims raised with them.

            vii)       Delays noticed in the receipt of material, consumables, plant and equipment.

 

C)        Issues with Client

            i)          Notes on discussion with client's representative or engineer and receipt  of approved drawings or instructions.

 

            ii)         Records of instructions or letters received from engineer or his deputy.

 

            iii)        Dispatch of confirmation of verbal instructions from clients.

            iv)        Record of request for attending measurements and failure, if any, to attend the same by client.

 

            v)         Requests to client for attending inspection and testing and failure, if any, to attend the same.

 

            vi)        Any communication regarding invoices, certificates and payments, etc. during submission and approval.

 

            vii)       All letters, notices required to be sent to client as per applicable contract conditions.

 

D)        Issues with Sub-contractors and Suppliers

            i)          Transactions with sub-contractors/suppliers including sub-contract orders, letters and communications.

 

            ii)         Confirmation of verbal communications.

            iii)        Measurement and inspection of sub-contracted work.

            iv)        Record of invoices, certificates and payments made to them.

 

E)        Issues with Other Agencies

 

            i)          Feedback to bankers or financiers as required.

            ii)         Visit to site by Government authorities, Press and any other publicity media.

 

            iii)        Record of any other visitors and notes on discussions with them.

 

 

 

F)        General Issues

 

            i)          Special marking of all events and records which may give rise to claim for extension in time and for increased cost.

 

            ii)         Copying the important records at site to Contract Department at Head Office for comments from them and to create extra copy at H. O. in case of loss of record at site.

 

            iii)        Record of discussions with senior management people from Head office for obtaining guidance on policy matters.

 

            iv)        Maintaining the safety of all records for future information and settlement of all claims.

 

Conclusions

 

Though some overview of Contract Management activity is carried out in above pages, one needs to go into every aspect of Contract Management for satisfactory understanding of the subject.

 

Following topics need to be visited in greater details to get the full picture of this important subject.

 

1.         Indian Contract Act, 1872 and its significance for Contract Management Strategy.

 

2.         Relevance of FIDIC Contract conditions in Indian Construction Projects.

 

3.         Appreciation of impact contract conditions on the smooth and proper execution.

 

4.         Nature of claims and disputes arising during the contract execution.

5.         Settlement of Disputes through various Dispute Resolution Methods.

6.         Indian Arbitration Act and claims settlement.

7.         B. O. T. contracts and concession agreements for privatization.

 

These topics will be dealt in greater details as we progress though these issues in further articles covering above topics.  This author welcomes suggestions from readers regarding any other topic, they would like to be covered in the series.

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