We take you through the process of contract management in construction and the reasons why it’s essential to the smooth running of your project.
What is contract management?
Contract management involves the implementation of a set of procedures defined in a contract. Within construction contracts, these procedures will include (amongst others) payment provisions, design acceptance as the construction process is underway, risk management and change control.
The change control procedures are arguably the most difficult to administer, as both parties need to agree on the cost and/or time impact. If the change control procedures are not administered correctly, or in the right collaborative manner, this can lead to dispute.
Keeping an audit trail of contract communications is critical:
“A party to a dispute… will learn three lessons: (often too late) the importance of records, the importance of records and the importance of records.”
Max W. Abrahanson, Engineering Law and ICE Contracts 4th Ed, p. 443
What is contract management in construction?
A construction contract sets out the procedures to be followed by the parties, and the remedies if they are not adhered to. Different ‘standard forms’ of construction contract exist, and they are drafted in different styles. Within the ‘standard forms’, there’s a suite of contracts applicable for the employment of consultants, subcontractors, and main contractors. They cover minor works and major projects. The minor works contracts are more straightforward to administer, while those for major projects are more complex with greater focus on risk management and project reporting.
Each contract will refer to the procedures in slightly different ways and use different naming conventions. But essentially, they all cover the same procedures.
A construction contract typically includes:
A Form of Agreement: which sets out the parties to the agreement and the documents forming the contract
Scope of work/ specification: a thorough description of all the services and materials to be provided by the contractor, as well as the specifics of the project – including location, nature and any constraints such as noise levels and access
Clauses: covering communication, design acceptance, risk management, change control, dispute management, insurances, payment, termination, and insurances
A programme/schedule: a detailed programme setting out how the project will be delivered
A pricing document: defining how the price has been broken down. This is often used to calculate interim payments
It’s important to note that contracts are often amended. So, even if using a standard form, you should understand what the amendments are as these can materially affect how the contract is administered, the deadlines, and the remedies for non-compliance.
What contract types are used in construction?
Like any contract, a construction contract is a diverse document that differs depending on the scope of the work required, complexity, and value. There are many different types of contracts available within the construction industry, so picking the right one is essential.
The Joint Contracts Tribunal (JCT)
JCT contracts are some of the most widely used in the UK. A suite of contracts is available, including those with quantities, without quantities, and with estimated quantities. There are also sub-contract forms, consultancy contracts, and contracts for scenarios like domestic builds, maintenance, and repairs and minor works.
New Engineering Contract (NEC3 & NEC4)
The NEC was first introduced in 1993, and has since become one of the most standard forms of contract used within the UK construction industry. NEC contracts were created to prevent costly disputes, and are mapped out in a straightforward and easy-to-understand way. NEC4 was created as a positive evolution of NEC3, with the main differences being improved clarity, new support for dispute avoidance, and innovative approaches to project efficiency. NEC4 contracts are endorsed by the Government Construction Board of the Cabinet Office, and NEC use is growing internationally.
International Federation of Consulting Engineers (FIDIC)
FIDIC contracts are considered to be the traditional international standard, and are widely used throughout construction.
Bespoke
While most construction projects take a more standard approach to contract management in procurement, sometimes a more bespoke contract is adopted. There are inherent dangers of a bespoke contract, as the procedures are untested and can create more problems if poorly drafted.
The process of managing a construction contract
The contract management process is typically divided into two phases: tender stage and construction/management.
Tender stage
1. Procurement strategy Establishing which contract(s) are most applicable. This could include a framework contract with construction contracts for each call-off.
2. Drafting This involves drafting the scope, completing the contract documents and any amendments. This may include a number of stakeholders from the client side.
3. Procurement Obtaining prices from the supply chain. This may be a competitive process with a number of bidders or negotiated with a preferred bidder.
Construction/management
1. Execution The signing of the contracts by both parties.
2. Implementation Implementation of the contract procedures in line with what’s been signed.
The benefits of managing your construction contracts
There are a wide range of financial and reputational benefits to maintaining effective contract management throughout every stage of your project.
Reduce risk
Protect the parties from risks arising from the project and risk of dispute
Real-time reporting
Keep both parties up to date with risk and the outturn time and cost forecasts
Payment
Ensure the appropriate parties are paid on-time
Quality control
Maintain quality control throughout the construction process
Using software to manage your construction contracts
It’s clear every business has a lot to consider when it comes to the successful management of a contract – and a project overall. That’s why using contract management software is the smart choice for keeping your construction project running efficiently and giving you access to everything you need for every aspect of your contract in one place. The benefits include
- Handle documentation and communications simply
- Get an auditable workflow trail
- See real-time reports
- Enable easier communication between stakeholders
- Keep all parties aware of required actions
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