SI-5251 ASPEK HUKUM DAN MANAJEMEN KONTRAK

PROCUREMENT and CONTRACT MANAGEMENT

March 2023
Contract Administration – Contract Management
BEFORE CONTRACT SIGNING

▪ Contract management is to ensure all parties involved in the contract

meet their obligations as quickly and effectively as possible.
▪ Contract management make sure that each party has the capabilities to
carry out their contractual obligations after the agreement is signed.

AFTER CONTRACT SIGNING

▪ Contract administration involves in the planning and development of

contracts
▪ Contract administration involves in how the contract is worded before the
parties agree to the arrangement,

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Contract Administration – Contract Management

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Contract Administration – Contract Management

CONTRACT MANAGEMENT CONTRACT ADMINISTRATION

CLOSING
SIGNING
PREPARATION / DRAFTING EXECUTION

EMPLOYER/ENGINEERS EMPLOYER – CONTRACTOR(S)

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 SOME IMPORTANT ASPECTS
OF THE EXECUTION AND
ADMINISTRATION OF
CONSTRUCTION CONTRACT

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 From Idea to Reality
PROCUREMENT OF
GOODS OR SERVICES

Term of
Reference Bidding Contract
Employer’s Documents Document
Requirement

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Public Procurement

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 Selection of Contractor (s)
 Method of Selection
 direct appointment
 competitive bid
 Concept of Competitive Bidding
 Bid Evaluation
 lowest, responsive & responsible
 Bid Ethics
 unbalance bid
 bid peddling (sub-contractors to contractors) → offers lower cost
 bid shopping (contractors to sub-contractors) → finding the lower cost
 doctrine of “promisorry estopple” (equitable doctrine) – sub-contractors’ oral Prebid
quotation

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 ttps://www.investopedia.com/terms/b/bid-rigging.asp
Selection of Contractor (s)
Problems in Bidding – BID RIGGING

▪ Bid rotation: Bid rotation is a form of market allocation that occurs when bidding
companies take turns being the winning bidder.
▪ Bid suppression: Bid suppression occurs when one (or more) bidder(s) sits out of the
bidding so that another party is guaranteed to win a bidding process.
▪ Complementary bidding: Complementary bidding occurs when companies
intentionally submit uncompetitive bids as a way of guaranteeing that their bid is not
selected and helping to ensure that another preselected bidder is chosen. This is also
called courtesy bidding or cover bidding.
▪ Phantom bidding: Phantom bidding is employed in auctions as a way of compelling
legitimate bidders to bid higher than they normally would.

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 Selection of Contractor (s)
 Bid Security & Limitation of Offer
 bid bond (principal, oblige, surety)
 limitation of bid
OBLIGEE
(employer)

SURETY PRINCIPAL
(agent) (contractor)

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 Selection of Contractor (s)
 Mistakes in Bidding

 must be factual or arithmetic nature and material

 error in judgment is not considered mistake
 bidder’s right to withdraw
 bidder’s right to correct
 doctrine of “equitable estoppel” – sub-contractors’ quotation

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Assurance of Performance (1)
▪ Duties, responsibilities and liabilities of parties
▪ Performance Bonds
▪ Third Party Liabilities
▪ Liability of Owners and its Representative
– indemnification (hold harmless)
– broad, intermediate, limited
▪ Termination of Contracts
– termination for default
– termination for convenience

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Assurance of Performance (2)
• Payment
– schedule of values
– progress and final payment
– substantial completion
– retainage
– payment bonds (pay when paid clause) – Miller Act
– escrow account
• Warranty and Guarantee
– expressed and implied warranty (contractual commitment)
– guarantee is contractual obligation
• Statutory Rights of Unpaid Contractors, Subcontractors and Suppliers

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Insurance vs. Bonds

INSURANCE BONDS
2 Main Parties 3 Main Parties
Party (insured, insurer) (principal, surety, obligee)
To spread risk (of potential loss among Credit from surety to principal to gain
Objective group of insured) interest
To cover risk without necessarily To warrant honesty and capacity of known
Risk Characteristics knowing the insured party party

Coverage Unlimited Limited

Warranty Maximum 100% Limited

Subrogation No (sometimes yes) Yes

Premium Low to high Low

Contract can be canceled if insured Contract can not be canceled, although
Cancellation party fails to meet his/her obligation (s) principal fails to meet his/her obligation (s)
to the surety

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Types of Construction Insurance
– Commercial General Liability Insurance (CGL)
– Operation and Premises Liability Insurance
– Contractor’s and Owner’s Protective Liability Insurance
– Completed Operations Liability Insurance
– Contractual Liability Insurance
– Professional Liability Insurance
– Automobile Liability Insurance
– Workers’ Compensation Insurance
– Cargo Insurance
– Aircraft and Watercraft Insurance
– Contractor’s Equipment Floater Insurance (mechanic breakdown)
– Explosion, Collapse and Underground Insurance (XCU)

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Types of Construction Insurance
• Installation All Risk Insurance or Erection All Risk Insurance

• Builder’s (Contractor’s) All Risk Insurance (CAR)

• Wrap-Up Insurance
– Insurance provided by owner to insure all parties (owner, contractor, A/E, subs, supps)
– Lower premium, no redundancy nor loopholes, simple, no subrogation

• Umbrella Excess Liability

– Coverage extents beyond the limits of liability covered by regular contract liability
insurance

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 End of Lecture Note on
INTRODUCTION TO PROCUREMENT AND CONTRACT MANAGEMENT

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