Managing a construction contract: The post-award phase

This is the third article in a series of articles providing a brief overview of managing a construction contract. The first article covered the basis and overview for this series, and the second article discussed pertinent aspects of the pre-award phase.

The post-award phase commences once the contract has been awarded. The Employer (Project Owner) has now selected a Contractor according to their selection criteria and has presented a contract for signature by the parties.

The first step is to review the contract presented for signature. The parties should ensure that the terms contained therein do not differ from the tender phase contract. As a matter of good practice, the contract should clearly capture the rights and obligations of each party. In addition, the parties should ensure that the following are annexed to the contract and signed:

• Concise scopes of work.
• Pricing information together with the pricing basis.
• The schedule for managing the progress on the works with an updated start and completion date (which is reflective of the timing of the award).
• All other relevant documents which the parties are expected to comply with.

Once the contract has been reviewed and signed, the parties will be required to manage the project according to its terms. The form of the contract may be a bespoke agreement or one of the various recognised standard form contracts. Standard form contracts have the advantages of representing good practice and being easier to understand due to them being widely used. Both parties need to be familiar with the standard form contract being used.

After signing the contract, the parties will be required to ensure that the necessary payment guarantees, bonds and insurances are in place. Both the Employer and Contractor should know what is required of them and comply. In the absence of compliance, the party requiring the guarantee, bonds or insurances must request them from the party who should be providing them. The parties should take note of the contract time periods for providing these.

Once the project has commenced, both parties should:

1. Ensure that frequent progress meetings are held and that minutes of these meetings are taken. These meetings will allow both parties to resolve issues.
2. Both parties should be represented by sufficiently skilled human resources who understand the terms of the contract. Currently, more emphasis is placed on contracts rather than verbal agreements. Therefore, the parties representing the Contractor and Employer should be conversant with the terms, rights and obligations of the parties as stipulated in the contract.
3. The Employer should implement good contract management processes, and these should include management of the commercial commitments of the Employer. At a minimum, the following management aspects are recommended for the parties:
   1. Contract cost versus projected contract value taking into account variations still to be approved.
   2. The contract cost should be updated to reflect the approved variations which then becomes the contract price.
   3. Planned completion date in terms of the schedule versus actual completion date.
   4. A schedule of variations to the contract value, what is approved and what is currently under assessment; and
   5. Delay registers – What are the root causes of the delays? What is the extent of the delays?
4. Where the contract requires notices and/or claims from a party to the contract, it is imperative for the parties to comply with this. The Contractor in particular faces a risk of being time barred if he does not comply with the notice periods for claims.

The following aspects are some of the most referred to matters during the post-award phase and close attention should be paid to them. The basis of the assumptions made below is in terms of the JBCC agreement (which is the most used standard term agreement). However, there are other standard term agreements, and the parties should refer to their specific requirements when addressing these matters. These are addressed below generically as each contract may have different requirements:

• Notices of intention to claim money or delay: The Contractor should refer to the contract, including the terms that sometimes modify standard term agreements, to ensure compliance with the time periods for submitting notices of delays or claims. This is important as the Contractor may be time barred for failure to comply and would lose their right to the claim. The notice should include all aspects referred to in the contract clause dealing with notices. It should clearly identify the nature of the claim, what caused it, when it ceased or when it is anticipated to cease or what is required for it to cease. The specific requirements differ from contract to contract (GCC, FIDIC, NEC, JBCC) and the parties should familiarise themselves with their contract.
• Claim: The Contractor should claim according to the relevant clause of the contract. These are well defined in standard form contracts. The reason for the claim, the clause the Contractor is relying upon, the cost of the claim and if additional time is required, the basis thereof must be stated. Here again, different contract forms have different requirements, and the Contractor must familiarise themselves with the terms of their specific contract. The parties should also pay attention to any modifications of the terms where standard form agreements are used.
• Variation orders: Employers often change the scope of works with different specifications or requirements or alternatively add to the scope of works. These should be dealt with as variation orders. The general rule is that approval from a cost and schedule perspective must be obtained before executing the variation orders, however, the Contractor must refer to the contract terms dealing with variation orders.
• Interim payment certificates: These usually refer to monthly payments made for works complete up to a point in time. The Contractor usually provides the basis of their monthly claim to the agents of the Employer to process a payment certificate. Some contracts require the Employer and/or their agent to make fair assessments on a monthly basis. Cash flow is critical for project success. Therefore, the parties should use this mechanism of the contract as intended by the contract.
• Practical Completion: The date of practical completion indicates when the works will be fit for use. It is an important milestone on the project and usually, there are penalties for late completion levied against the Contractor for missing this date. The standard terms contract addresses the requirements for the Contractor to meet this milestone. These requirements usually include ensuring that the works are complete prior to this date and thereafter inviting the Employer or their agent where required, to inspect the works and certify practical completion. There may be a list of items that the Contractor needs to address for practical completion to be certified.
• Defects liability period: This is the period that is pursuant to practical completion and usually spans between 3 and 12 months depending on the terms of the contract. During this period, there may be defects that the Contractor must address.
• Retention Monies: The Contractor may sometimes put up a performance bond up to the value of 10% of the contract sum. In instances where the Contractor does not put up a performance bond, the Employer may withhold 10% on each payment certificate to serve as the performance bond. The contract provides for the terms of release in percentages at certain milestones towards the end of the project or in other instances the full retention to be released when a certain milestone is reached.
• Latent defects liability period: The latent defects liability period relates to defects that arise after completion which could not be found through a reasonable inspection at the time of completion. This is usually a period of 5 years; however, the terms of the contract would specify this period.

The contract plays a key role during the entire project but having roleplayers that understand the contract is equally important. Compliance with the requirements of the contract offers protection to the parties. The parties should act in good faith and agree on most matters.

 Bilaal Dawood

Bilaal Dawood Attorneys