Contract Awareness and Administration : Key Insights

Let’s Start with Why?

Construction Projects are complex and high stakes. These Projects carry numerous risk elements, including but not limited to Scope of Works (SOW), Design Philosophy, Site Conditions, Weather, Interface Matrix, and express or implied contractual provisions. To effectively mitigate or (alleviate) these associated risks, Contract serves as the ultimate guide as it defines the rights, responsibilities, and obligations of Parties involved, establishing the framework for risk allocation, payment structures, timelines, and dispute resolution. Without a clear understanding of these contractual provisions, Projects are susceptible to mismanagement, cost overruns, delays, and legal disputes.

By ensuring thorough Contract awareness and administration, Project teams can proactively mitigate risks, streamline workflows, and make informed decisions. A well-managed Contract helps prevent situations where one might say “We should have known better”.

How to do it?

First things First- Conduct a Contract Review Meeting: Common industry practice is that the team negotiating the Contract (typically a centralized headquarters team) differs from the Project site team responsible for execution. Therefore, it is crucial to transfer knowledge of potential risk areas, deviation lists, and unresolved commercial and technical discussions to the Project site team, to develop mitigation plans. Project Contract Manager should prepare a Contract Appreciation Document (CAD) highlighting key contractual provisions and this document must be reviewed and discussed with the team that negotiated the Contract, to align the Project Team with the signed Contract.

Key elements for CAD Presentation:

• Full Contract Documents including Tender Documents: Typically, Contract includes General & Special conditions, SOW documents with technical details, reference design & drawings and Site-specific procedural documents. The team should be guided on where all these documents are available and how to access these documents.
  
  
• Order of Priority of Documents: Which document takes precedence in case of conflicting provisions among Contract documents?
  
  
• Project Milestones: Project is a temporary endeavour with a fixed start and end date; therefore, Time is of the essence. The Project Team should know the key and control Project Milestones to ensure timely execution.
  
  
• Payment Terms and List of Submittals: Timely payments are critical. The Project team must understand the payment terms, invoice submission and certification timelines, required prerequisites (bonds & insurances), and necessary documents for payment applications.
  
  
• Obligations of Parties: Thoroughly examine SOW and outline both the Contractor’s and the Owner’s obligations against the list of deliverables. Some activities may require the Owner’s assistance for timely commencement. Close coordination shall be ensured for such activities.
  
  
• Change Procedure: Construction Projects are dynamic; to accommodate the unforeseen requirements, the Contract specifies the Change Management Procedure, including notification requirements and valuation methods.
  
  
• Notice Requirements: Contract sets out notice requirements for the events that deem to impact the timeline or cost of the Project. Adherence to these requirements is mandatory.
  
  
• Onerous Provisions: Since the Contract is typically drafted by the Owner, there could be some stringent clauses unfavourable to the Contractor. Project Team shall be aware of these provisions and shall take caution against these. For example, the negation of additional payment and time due to revision in the Contract documents or assessment of site conditions. In many Contracts, separate clauses for weather conditions and COVID/pandemic have been incorporated as foreseeable events, to negate the Contractor’s entitlement for these events.
  
  
• Project Handover: Understanding the required documentation for a successful handover, as well as the process for inspections, testing, and commissioning closure.
  
  
• Dispute Resolution Mechanism: If things become messy, disputes arise, the Contract specifies the resolution process, including applicable jurisdiction.

Project Team Response to the CAD

Once the CAD presentation has been reviewed and discussed with the key personnel, it should be distributed to all the Project departments. Each discipline must thoroughly understand the Contract requirements for their scope of work and become familiar with the Contract procedures. Furthermore, each discipline should also be requested to identify contractual obligations based on their expertise & team function, which may pose potential risks to the Project schedule & budget. For example:

• Engineering team can identify & advise on the technical risks.
• Procurement team can identify & advise on long lead items and market trends for suppliers/subcontractors.
• Construction managers can evaluate & advise on actual site conditions.
• Planning team can advise on critical items/activities for the Project.
• Quality and Safety team can evaluate stringent requirements to be followed at Site.
• Logistics team can identify risks on the supply chain.

Ensuring Contractual Compliance Throughout the Project Lifecycle

By conducting and incorporating the feedback from the Project Team on the Contract review meeting presentation, a solid foundation has been established for successful start of the Project. All stakeholders have understood their roles and responsibilities as per the Contract.

During the execution phase, performance monitoring shall be done against contractual milestones. Transparent communication and proper documentation shall be maintained for construction activities. Change management procedures, as specified in the Contract, shall be strictly followed to safeguard entitlements and protect the Contractor’s interests.

Continuously assess the risks identified at the Project initiation stage and adjust the strategies accordingly. Parties shall actively engage in addressing and resolving the contractual issues through established contractual procedures.

Conclusion

A well-administered Contract is the foundation of a successful construction Project. Contract awareness enables the Project team to proactively identify risks, mitigate potential disputes, and ensure compliance with contractual obligations. By thoroughly understanding the Contract’s provisions, Project teams can make informed decisions, maintain efficient workflows, and safeguard Project timelines and budgets. Ultimately, Contract administration is not just a procedural requirement—it is a strategic approach to achieving Project success.