Introduction to Construction Contract Management

Brian Greenhalgh

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138844148
• eBook ISBN: 9781317549413
• Topic: Architecture
• Subtopic: Architecture General

This book is an introduction to construction contract administration and management, covering the delivery and execution stage of a construction project and the various issues which the contract administrator needs to proactively manage. It can therefore be used as a contract administrator's resource book covering what needs to be done (and why) to keep a construction project on track from a commercial and contractual perspective. It is particularly appropriate for students and new practitioners from varied construction professions and whilst it covers domestic (UK) projects, it will be particularly useful for those studying and working on international projects where terminology, procedures and legal systems may differ from the UK.

The content is split into four parts and is subdivided into easy-to-read chapters replicating the timeline of a project during the construction stage:

• Part A covers initiating the construction stage, project delivery mechanisms, contract administration and health and safety management;
• Part B covers managing the construction stage, contractor performance and relationship management;
• Part C covers finalising the construction stage, project completion and close-out;
• Part D covers claims and disputes.

Introduction to Construction Contract Management will be particularly useful for students enrolled on global construction programmes together with international distance learning students and non-cognate graduates starting out on an international career in construction contract administration and quantity surveying.

Part B

Managing the construction stage

Performance and relationships

Part A covered the beginning of the construction stage of a project, i.e. setting up, contractor mobilisation and kick-off. When the contractor has commenced the execution of the scope of works, this execution needs to be managed to ensure it is carried out on time, within budget and to the required quality – the triangle in section 1.1.

This stage is therefore about delivery. Effective contract management during this stage will cover issues of performance, payment, variations and changes, and subcontracting. In addition, as major projects can often take a long time to both design and construct, design decisions may become outdated and new products may appear on the market which offer cheaper and/or better solutions to the employer’s requirements. Therefore continuous value analysis or value engineering should also take place during this stage.

4 Supervising the contractor’s performance

4.1 Introduction

This is possibly the most important aspect in effective contract management / contract administration. The contractor clearly needs to perform efficiently and effectively for the project to be successful for both themselves and the employer and management control on this performance can be viewed as a circular activity or a ‘loop’ as seen in figure 4.1. At the commencement of the construction stage there is the original plan, set out in the contract documents, which has been agreed by the employer as what they want to be built, by when and for how much. All subsequent activity in the project should be directed at achieving these requirements. The project team and especially the contractor ‘performs’ the works which is supervised and controlled by the PM / engineer together with the project management and supervision teams. This is all fairly straightforward and obvious, and what this chapter covers is the tools that have been developed to control the contractor’s performance and ensure it achieves the original requirements of the employer as amended by subsequent variations and changes.

The PM / engineer’s staff responsible for the supervision of the contractor will include technical engineers and construction managers to oversee the progress of the work on a daily basis. As far as this book is concerned, i.e. contract administration, the main tools for control are regular progress reports and regular progress meetings. The ‘Control’ box in figure 4.1 gives a list of these reports and meetings which should occur.

The various reports required in order to monitor and control the progress of the project should be set out in the Pre-start / Kick-off Meeting and will include:

• Inception Report (by the PM to the employer)

• Pre-start / Kick-off Meeting

• Project Progress Reports (usually monthly and / or quarterly)

• Project Progress Meetings

• Updating the project programme / schedule

• Construction Completion Report(s)

• Performance Report(s) on Contractor(s)

• Service Contract Completion Report.

4.2 Inception Report

An Inception Report is typically required to be produced by the project manager as part of their contract with the client and normally submitted within three months of commencing the project management services. The format and detail of the Inception Report will depend on the requirements of the particular client and an example / template is given in table 4.1. The main purpose of the Inception Report is to demonstrate the project manager’s understanding of the project, by describing the start-up actions and plans to fulfil the client’s project objectives. In general the Inception Report should:

Figure 4.1 Construction project control loop.

• summarise the project background, objectives and status;

• summarise the background and purpose of the PM’s Service Contract;

• provide a proposed project organisation showing reporting lines and interface between the various parties, i.e. Funding Institution(s), Client, Consultants, Subconsultants, site offices and contractors;

• describe the PM’s mobilisations of project staff, facilities and equipment (to date and projected to anticipated demobilisation);

• describe the PM’s activities (to date and projected) until the end of the project;

• summarise the status of preparations for or execution of the Works Contract(s);

• provide a Project schedule for the Works Contract(s) and the PM’s activities.

An Inception Report also provides the opportunity to identify:

• changes in project objectives, scope or plans since the PM’s original quotation / proposal;

• anticipated problems which could affect PM’s scope and/or schedule of services.

Even though an Inception Report may not be formally required by the employer, it is still good practice to prepare one for internal use or possibly as the first Project Progress Report – i.e. giving the baseline situation. An example of a table of contents for an Inception Report is given in table 4.1.

4.3 Pre-start / Kick-off Meeting

The Kick-off Meeting is the first official meeting of the project team who will be working together on the realisation of the project. The agenda usually covers introductions, statement(s) of mission, and how the project will be organised, in terms of teams or working-groups and the timetable of subsequent project meetings will be set here. The meeting is also called a Start-up Meeting or Pre-start Meeting, or Pre-commencement Meeting depending on the country of the project. The meeting should take place just after issuing the Notice of Commencement Date so that all parties are aware that the clock has started ticking. It is essential that formal minutes are taken at this meeting, which are often referred to later in the project if (or when) there are any disputes or disagreements between the parties. See table 4.2 for a standard agenda of a Kick-off Meeting.

4.4 Project Progress Reports

At the start of the project the PM / engineer should prepare the template for the Project Progress Report (see table 4.2) and, as the project leader, will have full responsibility for the reports as they are produced. On large, multi-contract projects where there may be resident engineers for each Works Contract, the project manager should require each resident engineer to prepare a draft of the sections of the report relating to their particular section, following the established standard report format. The project manager will, however, still retain editorial privilege to amend and mould the draft sections into a consistent and coherent report for the overall project.

However, although the PM should have ownership of the Project Progress reports, the information and data will come from the contractor(s) and the majority of the standard forms of contract require the contractor to submit periodic (usually monthly but also weekly) progress reports. For example, FIDIC now requires the contractor to submit monthly progress reports within 7 days after the last day of the period to which each report relates. The detailed requirements are quite thorough and can be summarised as:

• charts and description of progress, including design, contractor’s documents, procurement, manufacture, deliveries to site, construction, erection and testing, and works of each subcontractor;

• photographs showing the status of manufacture and progress on site;

• for each main item of manufacture: the name and location of manufacturer; percentage progress; actual or estimated dates of commencement of manufacture; contractor’s inspections, tests, shipment and delivery to site;

• records of contractor’s personnel, plant and equipment;

• copies of quality assurance documents, tests results and certificates for materials;

• list of notices of any claims;

• safety statistics; including details of all hazardous incidents;

• comparisons of actual and planned progress; including details of events or circumstances which may jeopardise completion in accordance with the contract, including any measures to overcome the potential delays.

Table 4.1 Contents of a Project Inception Report

Table 4.2 Agenda items for a Project Kick-off Meeting

Previous versions of many of the standard forms of contract gave the PM / engineer little power to require the contractor to submit records of personnel, plant and equipment and / or monthly reports. However, later versions do provide these powers and some (e.g. FIDIC) allow the engineer to withhold an Interim Payment Certificate until the contractor has submitted the appropriate progress report.

Therefore, the PM / engineer should, at the beginning of the contract, remind the contractor that:

• Monthly progress reports are to be submitted for each calendar month within 7 days after the last day of the month to which the reports relate.

• The first monthly progress report is to be submitted within 7 days after the last day of the first full calendar month following the commencement date. The period to which this first report relates shall be the period commencing from the commencement date. (For example: if the commencement date is 15 April, the first report, covering the period 15 April to 30 June, is required to be submitted by 7 July.)

• Interim Payment Certificates in respect of the Contractor’s Statements will be withheld until the contractor has submitted a monthly progress report for the period to which a Contractor’s Statement relates.

Should the PM / engineer disagree with any facts of the contractor’s monthly reports, this must be promptly recorded in writing to the contractor, copied to the employer, promptly notify such disagreement in writing to the contractor in an attempt to obtain the contractor’s agreement to submit corrected records.

In the event that the contractor fails to justify his submitted records and disagrees to amend them, confirm the engineer’s disagreement and the engineer’s records to the contractor (copied to the employer).

The term Project Progress Report does seem a bit dated in this fast moving internet age, so the analogous concepts of ‘dashboards’ and ‘scorecards’ appear to be more de rigueur and required by current fashion and practice. An advantage of dashboards and scorecards is that the major items of performance can all be shown together in one view, which makes remedial action easier to put into effect – much like a car dashboard is to the driver.

As included in the Appendices for the monthly progress reports, Progress Photographs should convey an overall impression of works progress. Pictures looking down manholes may be technically interesting to some but do not convey an adequate overall picture of the project progress.

The main purpose of the reports is to record progress, not defects: although pictures of defects might sometimes be appropriate to support narrative within the reports dealing with such issues. Pictures should be taken from the same vantage points each month to illustrate progress. The contract documents may also require the contractor to submit monthly progress photographs, from which a selection of the best quality may be chosen for inclusion in the regular progress reports.

The reports may also include minutes of meetings and any selected correspondence during the repo...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Dedication
• Contents
• Figures
• Tables
• Preface
• Acknowledgements
• Abbreviations
• Introduction
• Part A Initiating the construction stage Contractor mobilisation
• 1 Setting up for project delivery
• 2 Project communications, document control and BIM
• 3 Risk identification and management
• Part B Managing the construction stage Performance and relationships
• 4 Supervising the contractor's performance
• 5 Payments to the contractor
• 6 Variations and changes
• 7 Sub-contracting
• 8 Achieving best value and cost reductions
• Part C Finalising the construction stage Completion and close-out
• 9 Early termination of contracts and suspension of the works
• 10 Practical or substantial completion, delays and damages
• 11 Defects correction, final completion and close-out
• Part D Claims and disputes
• 12 Legal basis of claims and claim management
• 13 Claims for extension of time, delay and disruption
• 14 Adjudication, dispute boards and ADR
• 15 Arbitration and litigation
• Part E Ethics, fair dealings and anti-trust
• 16 Ethics, fair dealings and anti-trust
• References and further reading
• Index