Chapter Six

Project Contract Administration

 What is a contract?
A contract is defined as:

"an agreement made between two or more parties which is enforceable

by law to provide something in return for something else from a second
party".

Contracts are legal documents which can be:

 very simple or
 very long or
 Very complicated.

Contract is a legally binding document. The two parties are expected to

perform the various obligations they have undertaken, as expressed in
a mutually agreed set of contract documents.

A contract therefore, is necessary to protect both client and contractor

 What is a contract?
All contracts are an agreement enforceable at law, but not all agreements
are contracts.

Some elements must be present before an agreement becomes a contract.

These elements are:

 Competent Parties
 Proper Subject Matter
 Consideration
 Agreement
 Proper form
 Consent of the parties
Elements of a contract
 Competent Parties:
• For an agreement to be a contract, there must be two or more
competent parties.
• In order to be considered competent, a party must have a certain
legal standing.

 Proper Subject Matter:

For the subject matter of a contract to be proper, the
following
requirements should be fulfilled:
• First, the rights and obligations of each party must be clearly defined
• Second, the purpose of the contract must not violate the law.

 Consideration:
There must be a lawful and valuable consideration given by
both
parties.
• A consideration often called "Something for Something."
• A consideration must, also, be possible.
Elements of a contract
 Agreement:
• For a contract to be valid, there must be a mutual agreement.
• An agreement is considered to have been reached when an offer
made by one party is accepted by the second party.
• Both parties must wish and intend their bargain to be enforceable
by law.
 Proper Form:
The terms of a contract must be written so that both parties are very
sure of what their rights and responsibilities are.
 Consent of the Parties:
The agreement must be free from: Misrepresentation etc.
Types of contract

The procurement manager is responsible for selecting the best contract for a
particular project.
Procurement contracts are categorized into the following types and subtypes:
Fixed price contracts
Firm fixed price
Fixed price plus incentive
Fixed price with economic price adjustment
Cost-reimbursable
Cost plus fixed fee
Cost plus award
Cost plus incentive
Time and materials
 Types of contract
Fixed price contracts
This category of contracts involves setting a fixed total price for a defined
product, service, or result to be provided.

Cost-reimbursable
This category of contract involves payments (cost reimbursements) to the
seller for all legitimate actual costs incurred for completed work, plus a fee
representing seller profit.

Time and materials

Time and material contracts are a hybrid type of contractual arrangement that
contain aspects of both cost-reimbursable and fixed-price contracts
Contract administration
 It is the process of ensuring that seller’
s
the performance meets contractual
requirements.
 It includes:
• application of the appropriate project management processes
to the contractual relationship(s) and
• integration of the outputs from these processes into the overall
management of the project.
Contents of a contract
The contents of a contract varies depending on the types of procurements
as well as business that are involved in the procurement processes. Some
of the most commonly used contents of a contract are:
1. A short introductory paragraph.
2. Scope of the work and Time of completion.
3. Contract documents.
4. Performance bond.
5. Laws, regulations and permits.
6. Payments.
7. Extensions of time and changes in the work.
8. Owner's right to terminate the work.
9. Contractor's right to terminate the work.
10. Confirmation and signatures.
What Are the Stages of the Contract Lifecycle?
The six stages of a contract lifecycle are:
1. Contract creation
2. Negotiation and collaboration
3. Review and approval
4. Administration and execution
5. Ongoing management and renewal
6. Reporting and tracking
 Contractual conflict
Conflict management:

1. Conflict :
 Natural part of everyday life - inevitable
 Some type of unfriendly encounter
 We think of it as a problem
2. Can it be productive? How?
1. Often one learn from their mistakes or encounters
3. Since it is inevitable, need to know how to
manage or
handle it
 Handle in court? »Possible »Court can take
a long
time and be expensive
 Very few disputes actually get to this
stage –Often settled outside of court
 Settling of contractual disputes

Contractual disputers can be settled through one or more of

the following:

 Negotiation
 Arbitration
 Mediation
 Court/filing a lawsuit
Settling of contractual disputes-Negotiation
Negotiation
 People involved in a dispute discuss their problems and try
to reach an acceptable solution
 Can be an informal process
 Attorneys use negotiations to reach settlements even when a
lawsuit has been filed
 Negotiations often result in settlements
 If you settle, you cannot also continue with a lawsuit
 Client consent is required
 Neither sides gets 100% of what they want. Parties must
give and take to settle disputes.
Settling of contractual disputes-Negotiation
1. Negotiation
 Save time, money, and uncertainty of a trial
 It is :
• Most common;
• informal;
• usually handled out of court
• Ideal for many types of problems
 People talk to each other and try to reach a solution
acceptable to all »Happens with friends, parents, teachers,
employers
Settling of contractual disputes-Arbitration
Arbitration
 The parties to a dispute have one or more persons who listen
to their argument and make a decision for them
 Arbitrator is like a judge
 Proceedings can be Like a trial, but less formal
 Many arbitrations are Binding – the parties Must abide
by the decision
 When to use arbitration?
 When negotiation fails
 When faster and cheaper decisions are needed
 When the parties are not interested to be tried in public,
arbitration keeps privacy
Settling of contractual disputes-Mediation
Mediation

 A third party helps disputing parties talk

about their
problem and settle their differences
 The mediator does NOT make the decision
 The mediator helps the parties to come to a decision
 The mediator must be neutral!
 Voluntary – may not result in a decision
Settling of contractual disputes-Mediation
Litigation

 Litigation is a process for handling disputes in the court

system.
 Litigation is a contested action, where someone else,
such as a judge may make the final decisions for the
parties unless the parties settle before trial.
 Settlement can happen at any point during the process.
 Reading
Assignment
Compare and contrast the following

 Negotiation
 Arbitration
 Mediation
 Litigation
Contract Close
Out  It is the final phase of the contract life cycle
 The closing process can be simple or complex depending on the
contract type.
 This process requires close coordination between the different
parties such as:
• contracting office,
• the finance office,
• the program office, and
• the contractor.
 Contract closeout is an important aspect of
contract
administration.
Contract Close
Out
Contract closeout is completed when:
 All parties have fully satisfied obligations to the other(s)
 All contract requirements have been
delivered and Property rights have been settled to the
satisfaction of all parties
 all administrative actions have been completed,
 All documentation has been included in the file
 all disputes settled, and
 final payment has been made.
 Contract Completion Statement /memorandum
has been generated.
Contract Close
Out
A Contract should not be Closed Out
if:
 The contract is in litigation or under appeal
 The contract is under investigation or
involves a deferred debt
 The contract has value engineering
proposals
pending
 The contract is terminated and the
termination actions have not been completed
Thank you!!!