The relevance of good contract management for successful project management

It is said that the success of a project hinges on three criteria: cost, time and quality. According to Miller and Lessard[1], successful projects are not selected but shaped. The seeds of the success or failure of individual projects are thus planted early and nurtured over the course of the project.

In addition, successful projects require commitment, coordination, and competence. These are known as the 3Cs. Participants in a construction project don’t intend to make mistakes or execute poor work. These often arise from poor communication, poorly managed contracts, or poorly managed projects. Whilst there are many decisions and processes across multiple disciplines on a construction project, this article is limited to the contract management elements and the important role it plays in project management.

While the principles in the introductory paragraphs of this article may appear to be project management related, good contract management can assist you to achieve these objectives and be successful on your project.  Contract management should not be confused with project management. Even though they overlap, these positions are distinct with each requiring its own skill set.

A distinction needs to be drawn between drafting or adopting a fair and well-written contract and proactively managing the contract on the project.  The elements and requirements of cost, time and quality are reflected in all standard form contracts and the corresponding contract data. These are encountered in inter alia, the clauses that address contract price, contract variations, contract instructions, time for completion, project schedule submission requirements, defects notification, defects liability period, communication protocol, key contact persons with email addresses, completion dates, interim completion dates or milestones, payment terms and escalation, amongst others. The requirements and expectations of the parties are highlighted in these clauses and a proper understanding and implementation of these are required on an ongoing basis.

The question then arises as to what may be considered good contract management protocols? Firstly, it is important to recognise the three phases of a contract, viz, pre-award, post-award and closeout. These phases have been covered in detail in a previous series of articles. Each of these phases is accompanied by its own best practice recommendations which are detailed in the said series of articles. The emphasis to be made in this regard is that managing construction contracts require commitment, coordination and competence. The days of a handshake agreement or filing awarded contracts in the proverbial “File 13”, also known as the trash-can, are long gone.

An ongoing and committed effort is required to ensure compliance with the contract at all stages of the project and is best dealt with by a capable and competent professional. Coordination of all subcontractors, the allocation or flow down of contractual risk among the different project role players, scope definition for the professionals, contractor and subcontractor and the various party’s rights and responsibilities are all required to ensure smooth delivery of a project. All of these are achieved through effective contract management amongst the various role players on a project. Each participant in a project, ranging from professionals and the main contractor to subcontractors and suppliers, should ideally have a contract and manage their deliverables according to the terms thereof.

The five reasons construction projects fail, as identified by Construction Connect[2] are:

• Inadequate planning.
• Failure to communicate.
• Scope creep and Change Orders.
• Productivity issues and delays.
• Ignoring red flags.

Risk allocation is an important element in a contract and the general consensus in allocating risks is that they are allocated to the party that is in the best position to deal with them. On perusal of the reasons highlighted above for construction failure, it is clear that proper contract management is required to mitigate these risks.

Some considerations, not exhaustive, in addressing these issues are highlighted below:

Inadequate Planning

When dealing with inadequate planning, an example is when a construction manager contacts a contract manager or quantity surveyor a day before a subcontractor is required on site to execute certain subcontract works. This then leads to hasty awards without all the checkboxes ticked. The ideal way to address this is for the contract management professional to plan in advance with consideration of the contractual, cost and schedule allowances and create a timeline for the award of subcontracts at the outset of the project.

This plan should allow sufficient time for quotations, contract negotiations and award of subcontract works in advance of the subcontractor’s planned site mobilisation. Furthermore, a keen eye is required on material lead times to ensure that materials are delivered to the site on time.

Failure to Communicate

Effective communication is critical and cannot be over-emphasised. From a contract management perspective, contract progress alignment amongst project stakeholders is imperative and assists in ensuring that the project objectives are met and expectations are managed. These could be addressed at a site meeting where participants could discuss, amongst other matters:

• Currently approved contract values.
• Expected final contract values.
• Delays and how these are being dealt with.
• Coordination of work among the different direct contractors and subcontractors.

Scope creep and Change Orders

Scope creep is the result of changes or additions to a project’s scope requirements due to poor communication, unclear requirements or shifting priorities on the project which result in cost and schedule overruns. Change Orders or Variation Orders on the other hand are formal changes to the contract such as changes to design, specifications or materials.

Effective contract management requires that these are closely monitored and the correct processes in terms of the contract are followed to address them and the cost and time impact that accompany them. Failure to properly deal with these, will in some instances result in parties being time-barred from claiming these, thus losing entitlement or ending up in disputes.

Productivity issues and Delays

These affect the cost and time of a project. Contract Management professionals should be equipped to identify the root cause of these issues and implement strategies to mitigate them. Delays need to be identified as early as possible and addressed in a timely manner. In terms of the common law, the party suffering damage is expected to take steps to mitigate their damage. Therefore, in instances of delay, the party suffering the delay must take steps to mitigate the impact of the delay.

It is recommended that the site-facing construction manager or foreman be provided with a delay register to record all delays. These delays are then communicated to the responsible contract management professional to evaluate on a weekly basis. Thereafter, the impact of the delays is assessed and timeous notification and claim must be complied with.

Ignoring red flags

Ignoring red flags on a construction project can have severe consequences. Red flags are warning signs that indicate potential problems or risks in the project. Failing to address these warning signs promptly and following the terms of the contract where required can lead to project delays, cost overruns, and even legal disputes. Ignoring red flags can also damage reputations, lead to loss of business and harm relationships with clients and stakeholders.

Effective contract management requires identifying and addressing red flags early on, mitigating their impact on the project and dealing with them in terms of the contract where required. This involves establishing clear communication channels, monitoring project progress, and implementing appropriate risk management strategies. Ignoring red flags in contract management is not an option.

While a contract is an effective and imperative tool to identify the black and white rights and duties of the parties, it is also essential to consider the softer elements of stakeholder and relationship management in executing a contract. Often there is hesitation to implement a contractual right or duty and give notice to the other party due to fear of reprisal or dissatisfaction from a client or stakeholder which is often to the detriment of the party entitled to raise it. A better methodology to adopt is to diplomatically and clearly communicate with the client and stakeholder and attempt to resolve the issues. This protects you if there is a dispute where a paper trail is needed.

Please contact the Association should you require any further assistance in this regard.

Bilaal Dawood

Head: Membership Services

References

[1] Lessard, D. Miller, R. 2001. Understanding and Managing Risk in Large Engineering Projects. Massachusetts. MIT Sloan School of Management.

[2] 5 Reasons Construction Projects Fail (constructconnect.com), accessed on 23 April 2023