Close Contract Administration

Close Contract Administration: Only Method to Mitigate Disputes inConstruction
                                                     
Prof. Deepak Bhattarai, Ph. D.

Introduction

Construction contracts are the contracts between employer - the owner of the project and contractor who provides his services to construct the infrastructure for the owner. Generally, there is a third party involved in the process - the engineer who designs the project and may supervises it during the construction process. Some other - the fourth, party, may be involved for supervision.

It is the engineer or any agency which designs and prepares the contract document which will be implemented by the employer and the contractor. It is during this stage - contract implementation process that disputes arise.

Contract Document and Disputes

There is a contract form which is signed between the parties. This contract form provides brief description of the project, place where the project is to be implemented, time duration for completion of the project and cost estimate of the project. Along with this the following document also form part of the construction contract in order of their priority.

  1. Contractor’s bid- the priced bill of quantities
  2. Special conditions of contract
  3. General Conditions of contract
  4. Special provisions in the specifications
  5. General specification of works
  6. Construction drawings

Some contracts are found to alter this order of merit to suit their need. All of the above documents are provided to the contractor during bidding process as bid document and the bidder is expected to read all the documents provided - the tender document.

One more document- the Instruction to Bidders (ITB) is also provided along with the above documents. This ITB contains instructions to the bidders as to how to prepare bids, how to seal them and how to submit them to the address of the employer. Some ITB’s are found to contain parts of conditions of contract and also parts of the specifications. This invites chances for disputes - as these ITBs do not form part of the contract. It is very important to understand that the purpose of ITB ceases as soon as parties enter into the contract by signing the relevant document. Some are found to include ITB as contract document. It is not correct.  

Disputes
Generally, contract document is the source of disputes in any contract. Not properly prepared (NPP) document contains many mistakes and many ambiguities. Mistakes may be easy to interpret. But ambiguities give more than one meaning - may be two, three or four. And therefore they are interpreted by each party of the contract as suitable, convenient and beneficial to them.

Therefore, it is very important that contract document is examined by a professional construction manager or a contract engineer before it is taken for implementation.

The Causes of Disputes in Construction Contracts

There could be many causes of disputes related to men, materials, method, money, motive and time. All of them may be grouped as disputes due to:

  1. Internal Environment and
  2. External Environment

The most common causes of disputes in any construction projects are:

  1. Differing site condition: Geology, hydrology, Geography
  2. Defective contract document: Wrong, ambiguous
  3. Cardinal changes: Fundamental change by owner or by the need of the project
  4. Acceleration of progress: On the request or interest of the owner
  5. Suspension of work: By the owner or by any other reason not attributable to the        contractor
  6. Termination: Forced termination, unnatural termination before completion
  7. Directed change: By the instruction of owner - the variation order
  8. Constructive change: As work progresses as per design and specification, Increase in BOQ quantity.
  9. Delays due to no fault of either the owner or the contractor
  10. Impossibility to performance
  11. Inclement Weather: Not predictable by an experienced contractor
  12. Strikes other than due to contractor’s internal affairs
  13. Owner furnished items: delayed furnishing or improper materials
  14. Possession of site: Incomplete, delayed, social problems
  15. Access to the site: no clear access, associated social problems
  16. Superior knowledge of the parties: when one of the party has less knowledge
  17. Mal administration: wilful wrong administration or negligence
  18. Not payment on time by the employer: advance payment, interim invoices

 

With proper contract administration, the disputes can be mitigated or can be resolved as soon as they arise. Disputes when identified and resolved in their early stage has less detrimental effect to a project. If unresolved for long, they will have major effect on project - in terms of cost and time over run of the project. Therefore, contract administration is very important in any project. It is the duty of project manager or the contract manager to monitor closely the administration of any contract.

Contract Administration

Contract administration is nothing more than the enforcement of contract clauses - the provisions in the contract. After entering into contract, this starts from issuance of letter to proceed to the contractor. Another important part of contract administration is to issue a letter confirming the site handover with appropriate and undisputed clear access to the contractor. Establishing the date of commencement as per the contract is equally important.

Contract requires that as soon as a cause or causes (any of the above 18) arise, that needs to be documented - a letter must be sent to either party. It is very important and productive to maintain good communication between the parties in the preliminary stage of claims or disputes.

The cause of dispute must be identified and its effect must be quantified. This should be discussed between parties and tried to be resolved amicably by negotiation rather than by involving third party. Involvement of third party will be more expensive and time consuming. Parties must try to stop this extra spending for the benefit of the project and this “try” essentially means that contract is administered closely.

Conclusion

Contract administration is the implementation of the provisions contained in each clause of the contract document - the conditions of contract. The project managers are expected to read each clause of COC several times and refer to the drawing, the specification and other documents whenever there is a problem and whenever they write letter to the contractor. It is important to refer clauses of COC whenever a letter is written by either party. This makes contract administration simpler.

Contract administrator should be acquainted with all the terms, conditions and provisions contained in the contract. He should regularly monitor the situation and should check if alteration in those terms and conditions are being affected. Immediate remedy as per the contract must be sought.

A very high level of knowledge, experience and wisdom may not be required for contract administration. Understanding the meaning and spirit of each clause is however is important. Sincere and continuous study of the provisions in the contract should suffice.

My recommendation to the project managers is to prepare a schedule of actions to be taken in a particular contract. Sample schedule is:

Contract Clause

Provision in the contract clause with its meaning

Action to be taken (when)

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