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Contract Management
Lecture No. 07
Topics to cover
Contracts naming convention
Contract Strategy
Formulating a contract strategy
Project Delivery Methods
Traditional Project Delivery
The goods are usually construction materials. The services are usually
labourer and use of plant to effect work but they can include design services
and management services.
For example, some contractors call their own form of contract a ‘Guaranteed
Maximum Price Contract’ but usually there is no guarantee that the price
will not increase.
Contract Strategy
Contract Strategy
In deciding what form of contract the client should enter, the three issues need
to be carefully considered
Contract Strategy
Management of the project lifecycle
Clients have a choice of either managing individual stages of the project
lifecycle themselves or engaging suitable qualified and experienced
consultants such as project managers.
Contract Strategy
Design of the facility
Once a decision is made on ‘management’, the client decides who to contract
for design services.
Since the design work may involve a number of specialist designers, the
client may either enter into one contract only with the ‘main’ or ‘chief’
designer, who in turn would form separate contracts with the other design
specialists, or form separate contracts with individual specialist designers.
The former approach is more common. Its main advantage for the client is in
the clear definition of responsibility for the design and its overall co-
ordination and integration.
Dr.-Ing Abdur Rehman Nasir
Assistant Professor of Construction Engineering and Management 06.11.2018
NIT (SCEE), NUST H-12, Islamabad 15
CE-898
Contract Management
Contract Strategy
Design of the facility
The latter approach gives the client more control over the selection and
performance of individual design consultants.
The client must, however, nominate one of the designers to assume the role
of a design leader to ensure effective co-ordination and integration of the
design.
Alternatively, the client will appoint a project manager to lead the design
team.
Contract Strategy
Design of the facility
In ‘design and construct’ contracts, the contractor becomes responsible for
the design. The contractor has either in-house design capabilities or sublets
the design work to design firms. This practice is increasingly popular on
medium to large commercial and engineering projects.
Contract Strategy
Construction
A contract to build a construction project may be awarded to one contractor,
which is the most common practice, or to several contractors.
The latter practice is associated with ‘fast-tracking’ (a process of overlapping
design and construction) and may also be applied on projects where risks are
such that a reasonable price cannot be formulated through a tender process.
A project is then ‘packaged’ into several contracts, which are let concurrently
or sequentially to separate contractors.
Contract Strategy
Construction
Where the client proposes to ‘package’ the work to several contractors, it is
common to appoint a construction manager to lead the contracts (then
called trade contracts or separate contracts) on behalf of the client.
It may well be that the client will let one contract for all three elements or
three separate contracts, one for each element, or the client may choose any
combination of those elements.
The decisions taken during the development of a contract strategy affect the
responsibilities of those involved.
They also allocate risks and define policies for risk management, as well as
defining the extent of control transferred to contractors. Therefore they
affect all of the crucial project objectives of cost, time and quality.
In this part, the terms ‘delivery methods’ and ‘options of project delivery’
will be used to describe project organization structures.
Unlike corporate organization structures that define the main functional and
administrative units of a firm, project organization structures define a
hierarchy of the key project team members and give the contractual and
communication links between them.
They define contractual links among the key project team members and the
flow of information within the hierarchical management structure.
Methods vary and their nature is determined by the roles played by the
project team members, the relationships between them, the timing of
events, as well as the formal general conditions of contract used.
iii. The degree of documentation available before contracts are entered into.
With full documentation available, a traditional method of delivery may be
the best alternative.
The method is well known, its structure is clearly defined, and the roles and
responsibilities of individual project team members are understood.
The design consultant will advise the client on the most suitable contract
conditions and the procedure for selecting a contractor. This will involve
drafting tender conditions, recommending how the tender process should be
carried out, evaluating tenders and recommending a winning tenderer. The
design consultant will also make a recommendation on the selection of
nominated subcontractors.
The contractor undertakes to fulfil all the obligations under the contract,
namely to build the facility within the agreed cost and time budgets, and to
the required quality standards.
Figure 1 shows that the contractor has a communication link with the design
consultant but not with the principal/client. This is characteristic of the
traditional method.
Things done and directions given by the design consultant as the agent of the
principal bind the Contractor just as if done by the Client. In general, a claim
cannot be made against the agent for acts performed as agent of the client
but must be made against the client.
In the opposite case, the client may argue that the design consultant is not
acting in the client’s best interest and may have a claim against the design
consultant for breach of the terms of the consultancy engagement.
The client needs to ensure that only a highly experienced and reputable
design firm is selected for this task.
Apart from being selected by the client on advice from the design consultant,
nominated subcontractors do not enjoy special privileges.
Advantages to Client
Advantages to Client
The traditional method of project delivery promises a number of distinct
advantages to the client. A brief summary of potential advantages is given
below:
The completion of plans and specifications before the award of the main
contract allows the client and the contractor to make a fairly accurate
estimate of the cost and construction time of the facility.
Because sufficient time has been provided before construction for the
development of design and the production of documentation, the risk
associated with design changes (variation orders) is expected to be low.
Dr.-Ing Abdur Rehman Nasir
Assistant Professor of Construction Engineering and Management 06.11.2018
NIT (SCEE), NUST H-12, Islamabad 58
CE-898
Contract Management
Advantages to Client
The client’s financial risk associated with the construction stage is relatively
low since the contractor assumes most of the risk.
Disadvantages to Client
Disadvantages to Client
The major disadvantage of the traditional method is that construction generally
cannot start until the project is fully designed and documented. This extends
the period of the whole project and increases the vulnerability of the client to
financial risk through inflationary and interest rate movements.
Other potential disadvantages of the traditional method are:
the lack of the contractor’s technological and management expertise and
input into those aspects of the design involving construction
the possibility of errors and discrepancies in contract documents that an
unscrupulous contractor might exploit to the disadvantage of the client
Dr.-Ing Abdur Rehman Nasir
Assistant Professor of Construction Engineering and Management 06.11.2018
NIT (SCEE), NUST H-12, Islamabad 61
CE-898
Contract Management
Disadvantages to Client
a high cost of tendering. The tendering cost may be as high as 3.5 per cent of
the tender price (Cordell 1980).
The client requires the consultants to provide advice and monitoring of the
project through the design, documentation and construction stages.
Thank You!
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