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4.0 CONTRACT ADMINISTRATION PROCEDURES

1 Introduction
There are a variety of Standard Forms of Contract currently in use for construction, process plant
or mechanical/electrical plant installation contracts. They will all, generally, provide for some
measure of supervision and administration to be carried out on behalf of the Employer, Promoter,
Purchaser or Client, by a person or corporate body. This person or corporate body is known
variously as the Engineer, Supervising Officer, Project Manager (or in Building Contracts, the
Architect) depending on the Form of Contract used.
It is outlined here the administrative actions and duties required of this person, and for the sake of
brevity will refer to this person as "the Engineer."

2 Duties of the Engineer

The duties and scope of authority of the Engineer will be set out in the Contract. For Example, in
the FIDIC 4th Edition Form of Contract for Civil Engineering Construction, the duties are set out
in Clause 2.
The duties of the Engineer will be typically to:

 Supervise the construction or installation and to ensure that it complies with the contract
(generally expressed in the form of specifications and drawings).

 Make changes to the drawings, specifications etc. as permitted within the scope of the
contract.

 Decide and certify when the works are complete.

 Asses the value of the work done, at predetermined intervals and certify the value of work
carried out.

 Make decisions allocating responsibility for risks, changes in construction and time for
completion.

 Assess the value of the work at the end of the contract and certify what is due to the
Contractor.
The Engineer acts on behalf of the Employer, as his agent, in certain matters and therefore the
Engineers conduct in these matters is generally regulated by the laws of agency. In general terms,
this means that acts of the Engineer falling within the scope of his authority will be treated as
though they were carried out by the Employer and therefore legally binding on the Employer.
Any limitations in the Engineers authority will be spelt out in the contract documents.
Generally, despite being employed by the Employer, the Engineer is expected to act impartially in
matters of dispute between the Contractor and the Employer. Again, there are exceptions to this -
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notably the FIDIC (1999) conditions do away with this requirement of impartiality, requiring the
Engineer to act fairly in certain matters only.
There will generally be a provision for the appointment of assistants to help the Engineer. These
persons or person may be, depending on the complexity, size and level of supervision required,
the Engineers Representative who may or may not be resident on site, Inspectors, Clerks of Works,
assistant engineers and technicians. The powers of these assistants will be normally less than the
Engineer and in most cases will be considerably less than the Engineer.
It is important that the Engineer, his Representative and whoever assists them are aware of the
limitations of their powers under the contract and do nothing to exceed these limitations.

3 Pre-Contract Actions

Before the start of the contract, there are a number of actions required of the Engineer to facilitate
the smooth running of the contract. Some of the actions may be required to meet certain obligations
under the contract. Not all of the actions are spelt out in the contract document. All are, however,
part of good managerial and administrative practice. Amongst the actions that should be taken by
the Engineer are:-

 Meet the Employer

 Arrange a pre contract meeting.

 Check that all necessary rights of access to the site have been secured

 Notify the Contractor of the date for the commencement of the works

 Issue contract drawings or other details required for the construction of the works.

 Obtain the Contractors programme for the works and if the contract requires it, a
description of arrangements and methods the Contractor proposes to use to execute the
works.

 Agree with the Employer, a system or lines of communication.

 Obtain insurance certificates, call for bonds where required from the Contractor.

 Obtain a list of proposed sub-contractors for approval or agreement.

The above list is not exhaustive but contains the main actions that can be expected for most
standard forms of contract.

A number of the items on the list require some discussion and are best dealt with in a "pre-contract"
or "start-up" meeting with the Contractor.
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A typical pre-contract meeting will discuss the following;-

 Communication channels

 Dates for valuations and/or payment schedules

 Any special administrative procedures the Employer might have to expedite payment of
valuations Arrangements for signing a formal contract agreement

 Dates for site progress meetings

 Publicity and arrangements for dealing with the press and general public

 Any special access arrangements and site security matters.

 Any problems that either side might anticipate

 Any additional works (of an incidental nature) that the Employer might want added to the
contract.

It is important to note that this meeting is not the place for protracted negotiations on matters at
the heart of the contract like rates etc. This meeting is held after agreement has already been
reached on those matters.

Minutes of the meeting have to be prepared and distributed to all persons present at the meeting as
soon as is practicable.

In the event that the Employer does not wish or is unable to be present, a copy of the minutes will
have to be sent to him.

4 Contract Supervision and Administrative Procedures

4.1 Communication

Communication forms a very important part of contract administration. Good and efficient
communication is an essential prerequisite for the effective administration of any contract.

Very few, if any, contracts go to completion without changes. These changes have to be
communicated to all the parties involved. The Employer, Engineer, Contractor's Agent, sub-
contractors and sometimes the public has to be kept informed of the progress of the job and any
changes that have been ordered. Outside this immediate requirement, communication aids the
coordination of the many complex, usually interrelated pieces of work required on a construction
or plant installation contract.
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The formal channel of communication after the contract has commenced is normally through the
Engineer unless the contract provides for, otherwise. This means the Contractor does not
communicate with the Employer except through the Engineer and vice versa.

Communication is done by

 Drawings and sketches

 Letters and instructions

 Reports

 Meetings

 Oral means

Drawings and Sketches (Including Written Specifications)

These are the principal means by which the Employer communicates his requirement to the
Contractor. It will normally be amplified by a specification which covers the standard to which the
project should be built.

Drawings and sketches should be suitably numbered. Titles should be clearly annotated on the
drawing. Changes to drawings should keep the original drawing number but indicate the changed
status by use of an alphabetical or other suffix (eg A, B, C etc) usually referred to as a revision
mark.

In practice, small changes to a drawing will not merit the issue of a new drawing as such change
can effectively be communicated by a sketch. A large number of changes on anything other than
a job of considerably long duration, or complex nature, is usually an indication of an undecided
Employer or poor engineering design (neither of which are desirable).

Letters and Written Instructions

The contract will place obligations on both parties to make certain notifications in writing.
Amongst matters that will normally merit this are

 Change in certain personnel such as the Engineer, his representatives, Site Agent and other
significant persons on the Contractor's staff

 Claim for extension of time or money by the Contractor

 Possibility of a delay or additional cost foreseen by the Contractor (or Engineer)

 Award of extension of time

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 Instructions

 Certification of Payments to the Contractor

 Approvals and requests for Approvals

Letters must be written by the person authorised to write them and be addressed to the correct
person. A scheme of reference numbers should be employed to assist filing. The letter should
always be marked for the attention of someone for prompt attention if it is not addressed personally
to a specific person.4

Instructions will generally be in writing although there may be provisions in the contract for
instructions given orally. Instructions, whether written or given orally, must be unambiguous.
Written instruction must be signed by the person authorised under the contract to write the
particular instruction. The instruction must also make it clear to whom it is addressed.

In practice oral instructions may be unavoidable. The force of such instructions vary according to
the contract. Where the contract provides for them, they are as good as written, although, in such
cases, they almost certainly will require to be confirmed in writing. Irrespective of whether this is
the case or not, it is always prudent to confirm all oral instructions in writing as soon as is
practicable to avoid later confusion as to what was actually instructed. Generally, it should be
possible to do this within a day of giving the instruction.

Good understanding and mutual trust between a Contractor's agent and the Engineer or his
representative allow oral instructions to be acted upon immediately thus promoting one of the main
reasons for issuing oral instructions. This should not, however, be used as an excuse for loose
administrative practice which results in all or a majority of instructions being issued verbally.

Reports

These are generally written for the benefit of one party. The financial report prepared by the
Engineer for the Employer, the progress report prepared by the Contractor for the Engineer and
the ground investigation report prepared by the Employer for the Contractor are examples of these.

The format of the report must always be agreed with the person for whom it is being prepared for,
beforehand. This ensures that the maximum benefit is derived from the report.

Meetings

Sometimes it becomes necessary to explore a range of matters, or to report on progress in a manner

that allows some interaction, amongst a number of parties. The mechanism for doing this is the
site meeting. There are generally two types of meeting, the "one off" and the regular or routine
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meeting. The former may be required to thrash out some specific matter, for example, a problem
of non- compliance of test results, or specification.

The latter is usually employed to discuss the regular progress of the contract. It is usual to hold
these progress meetings at fixed intervals which are decided at the beginning of the job. Monthly
intervals are a favoured on most construction contracts where interim payments are made monthly.

The format of the "one off” meeting is largely determined by the nature of the matter under
discussion.

The format of the regular site progress meeting varies but will usually cover the following agenda
either collectively or individually

Sample Agenda

1. Apologies for Absence

2. Confirmation of the minutes of the previous meeting

3. Matters arising from the previous meeting

4. Safety Issues

5. Progress of the Works

6. Problems Expected

7. Information Required

8. Any Other Business

9. Date and time of the next meeting

Such progress meetings should be chaired by the Engineer, his representative or some senior
member of the Engineer's staff.

Conclusions should be drawn to every item discussed. Both the conclusions and any actions
identified as well as the person responsible for implementing them should be clearly stated in the
meeting minutes.

The Engineer or his representative should ensure that the minutes are circulated to the relevant
people in time for them to review the minutes and act on them before the date of the next meeting.
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4.2 Quality Control

Quality Control has as its backbone, a prescribed regime of testing which differs from contract to
contract. The important elements of a quality control scheme will be the number or frequency of
tests or observations and an acceptability criteria. Quality control schemes are worthless if the
results are not reviewed immediately they are available and acted on.

It is the job of the Engineer to monitor the results as they are submitted and note any changes to
the general trend of otherwise acceptable results.

The action to be taken on non-compliance will be stated in the specification. In general the
Conditions of Contract will provide for the Engineer to either ask the Contractor for his proposals
to rectify the problem or take the necessary action to put right the defect and deduct the cost from
the money due to the Contractor. The Contractor must always be given ample opportunity to rectify
the problem before the latter course of action is undertaken.

Samples of materials or goods, particularly those manufactured in factories off the site may be
brought to the Engineer for his examination and approval. Such goods will require manufacturer’s
certificates in addition to the inspection. The currency of the certificates should always be checked
and not taken for granted.

For small and cheaper items, it is advisable to keep samples for comparison with later batches
brought on to the site for the works.

4.3 Time Control - Programme and Progress Charts

In the commercial world, time is money and construction and installation contracts are no
exception. All contracts will have a required time for completion, whether clearly specified or not.
Most contracts will require the Contractor to provide a programme of his proposed execution of
the works. The Engineer has as his agent, to monitor the progress of the works. The Contractor's
agent similarly will have an obligation under the contract to monitor this progress and to take
action to put the works back on schedule should the work fall behind the intended programme.

There are a number of computer programmes for keeping track of the progress of any number of
complex interrelated activities. For simplicity and ease of use however, the simple bar chart-
sometimes called a Gantt chart, named after its originator, Henry Gantt - is still unrivalled.

A progress chart has to be updated frequently if it is to be of any use. The level of detail shown
should be no more than that shown on the contractor's original programme except where the
contract requires greater detail.

Should it appear at any time to the Engineer that the Contractor's work is slipping behind his
submitted programme, the Engineer should ask for the contractor's proposals to put the work back
on schedule.
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4.4 Interim Valuations and Certificates

The contract will normally provide for staged or regular payments to the Contractor at fixed
intervals. The interval is normally one month. In re-measure construction contracts, the payment
will be based on the value of work carried out. The amount is certified by the Engineer as the value
of the works carried out in the month immediately preceding the valuation date.

The amount certified is only an approximate value of the work carried out. This is reasonable as
there is an opportunity to adjust overpayments that become obvious later on, in the following
certificates.

Measurement and valuations are prerequisites to certification. It is good practice for measurement
to be carried out jointly by the contractor’s agent and the Engineer's representative and agreed
before the contractor’s valuation or application for payment is submitted. Under these
circumstances valuation becomes a simple application of the rates in the contract bill of quantities
to the measured quantities.

There will frequently be additional work which has to be valued and included in the application
for payment. There are three main methods that are used to value such work.

 A straight application of the rates in the bill of quantities

 A valuation using as much as possible the rates in the contract for work of a similar nature

 A valuation based on a breakdown of time spent by labour and plant, quantity of materials
used with a stated percentage for profit. (Dayworks)

The usual practice is to indicate the method by which the work is to be valued at the time the
Variation Order is given.

After checking the Contractor's valuation, the Engineer either certifies the amount requested, or
calls the contractors attention to any discrepancies or errors and gives him the option of amending
the application. A third option open to the Engineer on most standard forms of contract is to certify
the amount he believes due. There is always a time limit within which the Engineer must make his
certification and the Contractor be paid. Engineers responsible for certification should be well
aware of this and draw the Employers attention to this. Most contract forms will provide for interest
accrual on the amount due to the Contractor after this period, even if this is not generally pursued
in practice.

Amounts to nominated subcontractors will be shown separately. Again most forms of contract will
give the Engineer the power to demand from the Contractor reasonable proof that all monies
previously certified and paid to the Contractor in respect of a particular nominated subcontractor's
work have been paid to the subcontractor.
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Once the certificate has been issued, the Engineer should send a copy of the certificate and the
application to the Employer for payment. Should the amount certified differ from the amount on
the contractor’s application, the Engineer should call the Employer's attention to it and explain
why.

4.5 Final Certificates

The final certificate is issued at the end of the contract. It is a statement of the final amount due to
the Contractor and as such it must be correct, as there is no opportunity to rectify any errors in it.
It is preceded by completion of the final measure which is a statement of account of all the work
carried out under the contract up to the contract completion. These quantities are agreed between
the Engineer and the Contractor.

4.6 Substantial Completion

As the name implies this state of the project does not require absolute completion but only
substantial completion. The power to decide when the works are substantially complete lies in the
hands of the Engineer. Works that are substantially complete should be capable, for all practical
purposes, of being used by the Employer for the purpose for which it was built.

On substantial completion, the Engineer is required to issue a certificate of completion. As the

works are not absolutely complete, some money which is due to the Contractor will be held back
or retained as a form of "insurance" against the Contractor not completing the outstanding works.
The Contractor will normally be required to give an undertaking to complete the outstanding work
in a specific period stated in the contract document. This period is known as the defects liability
or maintenance period5.

4.7 Defects Liability (Maintenance) Period and Certification

To facilitate this process the Engineer prepares a list of outstanding works (a "snagging" list) at
the end of the contract. The right way to go about this is to walk or drive over the site (if it is a
large site such as a highway contract) and point out and agree the items that require attention. In
many ways this list is like the contract drawings, bill of quantities and specification in that the
works listed must be clearly and unambiguously described and their location identified. This is
important as the person who may have to inspect the work a year later may not be the same person
who walked the round or made the list.

With advances in technology, the "snagging" list may now be augmented by a pictorial record
taken by digital still or video cameras.

At the end of the defects liability period another inspection is carried out to ensure that all
outstanding works have been carried out. The Contractor will also be required during this period
to rectify any further defects that have become apparent after the "snagging" list was prepared.
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This requires that a periodic inspection is carried out by the Engineer or some member of his staff
during the Defects Liability Period.

After satisfying himself that all outstanding works have been completed and all defects rectified
to the appropriate standard, the Engineer will issue a maintenance or defects liability certificate
which states the date on which the Contractor fulfilled his obligations to construct the works to the
Engineers satisfaction. It is important to realise that this certificate does not relieve the Contractor
of his general obligations under the contract, but only that to construct the works to the satisfaction
of the Engineer.

4.8 Records

Communication, quality control, reporting, instructions, measure and certification all produce a
substantial amount of paperwork in records. It is the responsibility of both the Contractor and the
Engineer to keep and maintain certain records. Many of these have to be prepared
contemporaneously. Some records are required contractually, others are required if the Engineer
and the Contractor are to safeguard the interests of the Employer and the Contractor's organisation
respectively,

Records may be classified into the following broad categories

 Historical

 Quantitative and financial

 Quality Control and Acceptance Test

 As-Built

These records allow an appraisal to be made, at any time, of the state and progress of the contract.
They also form the basis of fixing a fair reward/payment to the Contractor for work done.

Good record keeping make the final measurement and any claim assessment significantly easier.

Historical records include weather records, progress reports, progress photographs, the Resident
Engineer's diary, the Contractor's Agent's diary, the Site diary - kept separately by both Agent and
Engineer - meeting minutes, records of conversations, plant and labour returns, instructions etc.

Financial records cover invoices, measurement records, payment certificates etc.

Quality Control records will include test results, setting out information, level checks,
manufacturer's test certificates etc.
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As built records are the permanent record of what was finally constructed and what may often in
civil engineering works be hidden under the ground or sea. In plant installation contracts, this
category would include acceptance testing records and Operation & Maintenance manuals.

These records will be frequently referred to during the contract period and sometimes even after
the completion of the contract. It is important therefore that the records are filed away in a suitable
filing system. Filing systems differ according to the particular organisation's administrative
requirements. Most filing systems will however draw a distinction between financial and non-
financial records. Almost without exception, the Employer's general correspondence or other
confidential information will be filed away separately.

The broad classes of records outlined above can serve as a guide in devising a suitable filing
system.

Accidents can and do happen. It is therefore imperative that the records are duplicated and held in
a separate filing system at a different physical location. The Engineer and contractors respective
head offices can serve this function. This simple precaution will ensure that the records are
preserved for the Employer who may wish to take them over at the end of the contract.

With the increasing use of digital technology, additional measures may be required to ensure that
digital record, magnetic media in particular, are still readable many years after they have been
made.