ROLE OF CONTRACT MANAGEMENT IN CONSTRUCTION INDUSTRY

International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2

ROLE OF CONTRACT MANAGEMENT IN CONSTRUCTION INDUSTRY Mr.Swapnil Khandar1 1 P.G.Student PRMCEAM, Badnera 1 s.khandar7@gmail.com

-----------------------------------------------------------------------------------------------ABSTRACT : The luck of all projects is closely relates to the right prepared contract. Contracting is an integral part of construction projects. Managing the contracts therefore is equally important for the success of any business process due to rapid increase in multiple contracts. Contract and partnerships are an essential part of today’s high speed, multilateral business culture both in the public and private sector. Contract management is becoming an integral part of project management, and business in general. Many commercial and project managers are more and more facing contract management issues. Contract management is the active management of the relationship between the client and the contractor over the term of the contract for the provision of goods and services to the agreed standards. Contract ma nagement should be proportionate to the value, risk and complexity of the contract. In this seminar report information about contract management is given. The constructions contract lifecycle model and each of the construction contract lifecycle phases is described. The guidance in this report provide us with the know-how to manage the contract "start up", manage the process relating to unresolved issues; administer the contract effectively; undertake performance management; and manage contract disputes.

Successful contract management organisations can increase control, increase effectiveness and reduce cost and also provide strategic and competitive advantages. Good preparation, the right contract, single business focus and service delivery management and contract administration factors essential factors for good contract management. In Construction contract lifecycle model, each phase consists of different elements which are very important in the realization of the purpose related to exact phase. There are several reasons why organisations fail to manage contract successfully, the chief reason for project delays is poor contract management, therefore proper contract management is essential

INTRODUCTION

:

Contract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It also involves building a good working relat ionship between the customer and the service provider. It continues throughout the life of a c ontract and involves managing proactively to anticipate future needs as well as reacting to situations that arise.One of the key aims of contract management is to obtain the services as agreed in the Contract and achieve value for money. This means optimizing the efficiency, effect iveness and economy of the service or relat ionship described by the contract, balancing costs against risks and actively managing the customer and service provider relationship.

Contract management may also involve aiming for continuous improvement in performance over the life of the contract. The terms and conditions of the contract should include specifications, bill of quantities, contractor bonus, liquidated damages, time period, means to measure items executed, price ad justmen t procedures, variation/change control procedures, foreclosure, termination, and all the other formal mechanisms that enable a

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International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2 contract to be imp lemented. It is vital to build a contract that identifies clearly the obligations of the contractor and the employer. The contract must be built on a firm formal and legal foundation, it should be flexib le, to accommodate changes, variations etc. Good contract management goes much further than ensuring that the agreed terms of the contract are being met. There will always be some friction between the d ifferent perspectives and approach of employer and contractor. Contract management is about resolving or reducing such friction and achieving the completion of the project as envisaged. Increasingly, many organizations are departing fro m tradit ional methods of contract management and moving towards building constructive relationships with contractors. Contract management consists of the full and proper fu lfillment of roles and responsibilit ies.

Importance of Contract Management Organizations in both the public and private sectors are facing increasing pressure to reduce costs and improve financial and operational performance. New regulatory requirements, globalization, increases in contract and complexity have resulted in an increasing recognition of the importance and benefits of effective contract management. The g rowing recognition of the need to automate and imp rove contractual processes and satisfy increasing comp liance and analytical needs has also led to an increase in the adoption of more formal and structured contract management procedures and an increase in the availab ility of software applications designed to address these needs.

It is worthwh ile noting that contract management is successful if: The arrangements for service delivery continue to be satisfactory to both parties, and the expected business benefits and value for money are being realized.

The expected business benefits and value for money are being achieved.

The supplier is co-operative and responsive.

The organization understands its obligations under the contract.

There are no disputes.

There are no surprises.

Efficiencies are being realized. .

Contracting And Contract Li fe Cycle Contracting is a h igh- risk and an increasingly co mp lex business. It involves construction management, workab le organizational structure, and requires capabilities needed for success. Contracting success needs round – the –clock problem solving acu men .Contract is basically a co mmit ment between t wo consenting parties, which, if breaches, remedial protection can be sought under the law by the affected party, since the law recognizes its performance as the rightful duty. Contract management is essential for good contract in construction industry, its involved management of contract lifecycle, mana gement of contract start up, contract administration, control the disputes and proper record keeping.

The basis of developed model is made on construction contract life cycle model which is presented in Fig. 1.

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International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2

Fig. 1. Construction contract lifecycle model Each of the construction contract lifecycle phases have its input and output informat ion. Each phase has its own purpose: Contract request phase – different parties of the construction process can us such system and there are different type of the contracts. In this phase user can is at starting point and have to decide which type of the contract he needs.

Authoring phase – there are a lot of d ifferent contracts, but in most cases it is impossible to use exactly the same contract few times. At this point user can edit existing contracts so it passes to existing needs.

Negoti ati on phase – this phase is related to the presentation of drafts and versions of authorized contracts for review by other employees, or even vendors/customers/clients, etc.

Approvals phase – in most cases construction contracts are complex and have to be checked by different stakeholders, even in the same organizat ion. Such reviewers can be authorized staff, different subject matter experts, legal and appropriate.

Contract execution phase – at this phase have to be prepared and signed final contract.

Obligations phase – the life of a contract and its relationships continue doesn’t stop after signing the contract. At this moment starts very important post-execution stage with alerts, workflo w processes, risk assessment, spend management, co mpliance monitoring, and advanced reporting metrics.

Compliance phase – report ing capabilities provide organizations with visib ility into all contractual relationships including fully audit for contract.

Contract renewal phase – this phase is related to organizat ions possibility to capitalize on each and every renewal opportunity by identifying candidates for renewal, alerting employees to these contracts in time to make business decisions, and creating new contracts or drafts based on existing ones.

Each phase consists of different elements which are very important in the realization of the purpose related to exact phase. There are different structures for each phase, and those have to be analyzed separately.

Analyze the Contract and Agree the Service Provi der's Understanding of the Contract Identify deliverables and how their achievement will be measured.

Ascertain timeframes, part icularly any critical deadlines.

Understand payment arrangements, including links between payments and performance.

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International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2 Identify the roles and responsibilities of both parties and allocate responsibilities within the customer organization.

Confirm agreement with the service provider, especially in relation to any se nsitive matters. We expect that many customers may have certain procedures that must be followed before and during contract negotiation and prior to execution of contracts. The procedures may vary depending on the contract terms, the service provider and project type

MANAGEMENT OF CONTRACT START UP After a contract has been signed there are a number of matters that should be addressed to provide the foundation for successful contract management. An early step is to ensure that sufficient resources and senior management support are available to manage the contract. It is equally important to understand both the contract provisions and contractual relationships at the outset. The following checklist should assist the contract management team with provid ing a better understanding of the contract and ca n be used as a basis for developing an effective working relat ionship with the service provider.

ANALYS E THE CONTRACT AND AGREE THE S ERVICE PROVIDER'S UNDERS TANDING OF THE CONTRACT i.

Identify deliverables and how their achievement will be measured.

ii.

Ascertain timeframes, part icularly any critical deadlines.

iii.

Understand payment arrangements, including links between payments and performance.

iv.

Identify the roles and responsibilities of both parties and allocate responsibilities within the customer organisation.

v.

Confirm agreement with the service provider, especially in relation to any sensitive matters. We expect that many customers may have certain procedures that must be followed before and during contract negotiation and prior to execution of contracts. The procedures may vary depending on the contract terms, the service provider and project type

GAIN AN UNDERS TANDING OF THE B ACKGROUND TO THE CONTRACT AND THE RELATIONS HIP THAT HAS B EEN DEVELOPED WITH THE S ERVICE PROVIDER i.

Discuss the relationship that has developed with the service provider over the preceding phases of the contracting cycle.

ii.

Meet with the service provider as necessary to further develop the relationship and address issues that may imp inge on effective contract management.

ES TAB LIS H ANY REQUIRED S YS TEMS FOR MONITORING AND REPORTING, PROTOCOLS FOR COMMUNICATION AND RECORDKEEPING ARRANGEMENTS. i. ii.

Establish contract management or data collection systems or processes.

Draw up a mon itoring plan o r checklist covering key timelines, critical deliverables and performance reporting priorities.

iii.

Develop any procedures or protocols.

iv.

Establish recordkeeping arrangements.

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International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2 OBTAIN OR CONFIRM LICENCES IN RELATION TO INTELLECTUAL PROPERTY THAT HAVE NOT ALREADY B EEN OBTAINED i.

Ensure that relevant confirmat ion has been obtained.

ii.

Confirm all docu mentation is up-to-date.

iii.

Store evidence of these matters appropriately

BRIEF ANY TEAM MEMB ERS OR S TAKEHOLDERS : i.

Set out meeting arrangements for the life of the contract.

ii.

Confirm stakeholder involvement and their requirements for info rmation.

iii.

Set up and/or brief any co mmittees or working groups.

iv.

Brief any members of the contract management team regard ing their roles and responsibilit ies.

MANAGEMENT OF UNRES OLVED ISS UES : In many instances, not all issues are resolved at the time of contract signature. These need to be addressed in a timely way during contract start up. These issues can create problems when managing a contract if not properly dealt with at the correct time.

In situations where there are issues that have not been fully resolved at contract signature, the contract manager should: i.

Identify and record any agreements or arrangements made by the part ies relating to this when the contract was negotiated;

ii.

Identify and record aspects of the contract which have been potentially left for future development; and

iii.

Identify and record aspects of the contract which will be subject to some other process, for examp le, third party approvals.

The detailed rev iew of the contract at contract start up may also identify issues that require clarification or elaboration in the contract. It is important to address any such issues promptly. This may require a contract variation or exchange of correspondence.

ADMINIS TRATION OF THE CONTRACT : Good pro ject preparat ion and the right contract are essential foundations for effective contract management. The arrangement must also be flexible enough to accommodate change. In long term contracts, where interdependency between emp loyer and contractor is inevitable, it is in both their interests to make the relationship work. Contract administration handles the formal governance of the contract and changes to the contract documentation. All these areas must be managed successfully if the arrangement is t o be a success.

Contract ad min istration, the formal governance of the contract, includes such tasks as contract maintenance and change control, charges and cost monitoring, variation order process and payment procedures, management reporting, and so on. The importance of contract admin istration to the success of the contract, and to the relationship between employer and contractor, cannot be underestimated. Contract administration is an integral and important element of contract management and overlaps with mon itoring and performance assessment. It encompasses various activities that need to be completed on a day -to-day basis, including: i. ii.

Developing and maintain ing contact details of key people involved in the contract; Understanding the notice provisions;

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International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2 iii.

Scheduling meetings and other actions required by the contract delivery and acceptance of the goods or services;

iv. v. vi.

Making payments; Maintaining co mplete records for the contract itself; and Establishing and maintaining contract documentation.

CONTACT DETAILS : To assist the overall management of long term contracts, there can be benefits in maintaining up-to-date records of key personnel, stakeholders, end-users and/or experts and their contact details.

This can assist in facilitating co mmunications between the parties particularly where there are changes in personnel or where personnel are geographically dispersed.

NOTICE PROVIS IONS : Although notice provisions are not the most glamorous or excit ing of clauses, it is often important to determine at what time notification is considered to have been given or received. Therefore, the following essentials of a notice provision should be well understood: i.

The place at wh ich notice is to (or may) be served;

ii.

The method by which it is to (or may) be served;

iii.

Where and when service is deemed to take place.

SCHED ULING MEET INGS : For most contracts, meet ings and particular actions will need to occur at specific times throughout the life of the contract. It is an important element of contract admin istration that a schedule of meet ings for parties to the contract, end-users and stakeholders is established in advance, giving the time, place and purpose of the meeting. The schedule should also list any planned reviews or other key actions.

PAYMENTS : Contract payments should only be made in accordance with the provisions of the contract. Before payments are made evidence is required that the appropriate representative of the customer has certified that goods and services have been received and have met the required standard of performance. It is also important that payments for satisfactory performance are made in line with the t imeframes set out in the contract.

Payments for satisfactory performance should not be delayed because this can undermine the relat ionship with the service provider. Pay ments should be made following receipt of a correctly rendered invoice or other statement of expenditure. A ll necessary authorisations and approvals should have been obtaine d prior to making payment.

CONTRACT DOCUMENTATION : It is important that the most up-to-date version of the contract incorporating any variations is formally evidenced in writ ing and appropriately stored. This provides the basis for making payments and the ongoing management of the contract. It is likely by the contract management phase that a system for maintain ing

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International Engineering Journal For Research & Development E-ISSN No: 2349-0721 Volume 1 Issue 2 documents for the particular contract will already have been established. If this is not the case, a recordkeeping system containing all appropriate docu mentation should be established in accordance with the customer's recordkeeping policy and pract ices. If a system already exists it should be rev iewed to ensure that it is appropriate to the contractual arrangement. Any additional record keepin g requirements should be identified and any gaps in documentation addressed.

CONCLUSIONS : Fro m above study regarding various aspects of contract management fo llo wing conclusions is drawn Successful contract management organizations can increase control, increase effectiveness and reduce cost and also provide strategic and competitive advantages.

Good preparat ion, the right contract, single business focus and service delivery management an d contract administration factors essential factors for good contract management.

In Construction contract lifecycle model, each phase consists of different elements which are very important in the realization of the purpose related to exact phase.

Contract administration is an integral and important element of contract management and overlaps with monitoring and performance assessment.

There are several reasons why organizations fail to manage contract successfully, the chief reason for project delays is poor contract management, therefore proper contract management is essential.

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