Assignment Sample on Contract Management
1. Introduction
Contract management is about risk management and relationships management, and a contract is a document describing two parties’ relationship. This study is focusing on the identification, short listing and selection of contractors for the construction of buildings. It sheds light on different contract forms and their best practice with the key requirement of a valid agreement and evaluation of dispute resolution. This study aims to understand what contract management is and how to identify, shortlist, and select the job’s preferred contractor. The study is going to showcase the key requirement of a valid contract as well as dispute resolution.
2. Identification, short listing, selection of the contractor
2.1 Identification
A contractor is an individual that works on a contractual basis with the client to work on dealt projects. The contractor is the person who provides the raw construction materials and also provides staffing to the Company. Identifying contractors is one of the most critical aspects of the management of the project. As influenced by Loffler & Bovaird (2019, p.247), the main criteria of a company for searching for a contractor is always based on cost and capabilities. The client wants the contractor to earn more profit at a low price, which are the sole selection criteria. Therefore, the cost can be considered an important element for identifying appropriate contractors to complete the project within 12 months. However, the Company wants a low-budget contractor, but at the same time, they always look for quality people. Secondly, the Company or client identifies the contractor based on their qualification, i.e., their previous project work, evaluating their past performance.
The Company also searches for a contractor who has enough staffing to work for the Company. Moreover, the Company looks for a contractor who is the license holder. The Company asks for references to reliable sources to get a good contractor. The Company also looks for the contractor whether he is well trained in the projects. The Company also reviews the contractor’s background and testimonials and checks their safety officer. The Company or the client wants those contractors who have their equipment and tools for their work purpose. As stated by Safa et al. (2017, p.242), The Company also looks for those contractors who can make a written contract with the Company instead of verbal conversation. Nowadays, many contractors go on with the oral agreement instead of the written one.
2.2 Short listing
Short listing is the process of choosing those people who are better than the other and who meet the required criteria for the open requirement. The Company doesn’t converse with a single person for their project, but they meet with different capabilities and demands (Law.ac.UK, 2021). The Company checks before short listing whether the contractor has any legal transparency in the past or not. They also check whether the person abided by any construction law under Construction law UK. It is also checked if that person is financially stable to support the company. It is essential for both parties to be financially stable to support each other in the project.
The company checks the details of the past company of that person before short listing and matches the reputation of that person in that company. The company also fits whether the contractor is supposed to complete his work within the given stipulated time; for example, the company has given the deadline of 1 year to the contractor to complete the project. That’s why they cross-check from their history that a contractor is good enough to keep the commitment or not. The most important method of short listing a contractor is to check whether the person or the company has great management skills or not.
2.3. Selection of contractor
Construction efficiency and time-consuming is associated with the choice of an efficient contractor successfully. According to Chiang et al., (2017), p. 211-215 various contraction selection processes are applied through practice and a single attribute can not fulfil the goal as various stakeholders propose it. It makes it harder to analyze in times with many uncertainties presented in the environmental considerations. Insufficient time for execution, poor channels of information and complicated procedures may be the reasons for selecting contractors (Erdogan et al., 2019). The price attribute is also decisive in contractor selection as the lowest bidder involves high-risk client exposure.
The choice based on price basis delays the project completion on the estimated time, and also poor quality material may be used. According to Mason (2017), the selection of contractors can be described by discrete values: construction time, bid estimates, quality of performed existing projects, communication level with the internal and external stakeholders, and capacity based on different stakeholder risks and uncertainties. The subject of selecting a contractor is over a five-floor multi-purpose building on the existing car parking space.
This figure shows the different aspects associated with the selection of the contractor where the x1 represents bid estimates, and it shows the estimated bid for the project from the contractor. X2 represents the project’s construction duration required and calculated by the contractor, and x3 guarantees a period for the works screen. X4 represents the guarantee period for finishing the work with quality workmanship, and x5 expresses the experience in the construction. X6 represents the total amount of work performed by the particular contractor, and x7 represents the communication level with the stakeholder finally, x8 shows the quality of the project completed.
3. Forms of contracts and best practices of contract management
3.1. Forms of contract
Construction projects vary as per the requirements of contractors, and so it can be said that there are no two construction projects that are alike. There are multiple types of contracts in construction which satisfies the need of all the stakeholders involved in a construction project (Muhammad et al., 2019, p.1289). It is important for a contractor to identify which contract suits the project well in order to ensure stable establishment of a construction worker. It can assist a contractor in managing risks prevailing in the construction and also to manage cash flow throughout the construction work. There are various types of contracts in construction which have been discussed below:
- Time and material Contracts: Time and material contracts are best suited for projects in which the scope of the work is not pre-defined clearly. These types of contracts repay the contractors for the cost of the materials required for construction. In addition, it forces contractors to establish an hourly or daily payment scheme (Abutabenjeh et al., 2021, p.62). There are various pros as well as cons of this contract such as:
Pros of Time and material contracts
- Material and time both are agile: The contractors in this type of contract are repaid by the customers for the cost of materials and wages per hour. Hence, unexpected delays, roadblocks, and other issues related to the construction work are covered.
- Contract of time and material allow simple negotiation: Decision-making on rules of what material needs to be covered and what can be the hourly wage can be easier with the help of this contract.
Cons of Time and material contracts
- Tracking material and time can be a time-consuming process: Logging the cost of each and every material required for construction work can be a difficult task. Failure to provide an accurate number at the time of completion of a project can result in a low-profit margin. Therefore, it can be noted in this context that this type of contract requires more time in crunching the numbers and so it can be a time-consuming process.
- Efficiency is not rewarded in this type of contract: As this type of contract pays the workers on a daily or per hour basis, there are no scopes of rewards and incentives for finishing the work early.
- Lump-Sum Contracts: Lump sum contracts are known as contracts of the fixed price, and it one of the most common types of contracts in construction. This is because the contractors fix the price of overall construction work at the beginning of the construction (Kongsong, 2017, p.13310). This is the reason why lump sum contracts are the most common type of contracts in construction. The pros and cons of Lump Sum Contracts are as discussed below:
Pros
- It simplifies bidding: Providing a total price rather than bidding multiple times simplifies the overall bidding processes for contractors.
- Finishing a project under budget yields a higher profit margin: As the budget of the construction work is decided at the beginning, finishing the project under budget yields high-profit margins to the contractors.
Cons
- Increasing risk of loss in case of big projects: Bigger projects require more time and workforce to complete. Missteps and setbacks from the sub-tiers can cost huge amounts of money to the contractors.
- Miscalculation can destroy profit margin: In this type of contract, a contractor needs to take account of every variable involved in the construction work. As the budget is fixed at the beginning, any setback or unexpected delay can cut the profit margins.
3.2. Best practices of contract management
There are various practices of contract management that need to be followed by the contractors and other workers in order to ensure the smooth running of construction work. Various types of practices of contract management in construction are as given below:
- Monitor and assess the risks of contract: Identification of potential risks involved in a contract is an important factor before and after releasing a contract. Potential risks in construction can include cost-related, not delivering features as decided or expected, and inability to meet deadlines (Guo et al., 2021, p.9473). Assessment and monitoring of the risks are important in order to ensure the smooth running of the construction work.
- Tracking and managing approval of contract: After being created. Contracts are sent to multiple stakeholders for their approval. It includes legal, management, finance as well as teams of products (Kim & Kim, 2019, p.97). Leveraging technology can minimize the time spent in this process by highlighting unique parts of the contracts in a notice of the approvers. This process is important, and so contractors need to pay special attention to this procedure.
4. Key requirements and dispute resolution
4.1. Key requirements of a valid contract
There are six basic elements of a valid contract that are required in construction work. Various requirements of a valid contract are offer, acceptance, the intention of creating a legal relationship, consideration, capacity and legality, and certainty.
Offer
Analysis of offers is a traditional approach in the law of contract, and it is one of the prime requirements of a valid contract. The formula of offer identifies the moment of formation when two or more parties decide to come together to do something. As opined by Khan et al.,
(2017, p.348) it is usually a proposal offered by one party to another in order to join an agreement which is essential for the formation of a contract.
Acceptance
It is an agreement to the term offered by a contract and is the second most important part of a valid contract. If a person opts to support the offer on different terms, then it will be considered as a counter-offer rather than acceptance. Acceptance needs to be communicated with the offer in order to analyze its aspects accurately.
The intention of creating a legal relationship
An agreement can be considered incomplete if two parties do not agree to the important points of an agreement. Analysis of whether two parties have reached an agreement can be done by verifying whether one party has released an offer to be accepted by another. As suggested by Mwangi, (2020, p.1), the agreement may not give rise to a contract if the agreement is incomplete and insufficient. There cannot be a contract if two parties agree to the subject of the contract but do not agree with its terms.
Consideration
Consideration is another aspect of a valid contract that provides benefits to the one who has an obligation, such as the promissory. It can be detrimental for the person who wants to enforce the obligation, such as the promise. In case the consideration of one party is not transparent, the agreement will include certain languages such as ‘FOR VALUABLE AND GOOD CONSIDERATION.’
Capacity and legality
Legality and capacity of a contract is another most essential aspect of a valid contract. A contract needs to possess all the legal aspects required for fulfilling the requirements of a valid contract. As influenced by Karoki & Mwangangi (2020, p.46), it must abide by valuable laws and legislation providing clear guidelines of agreement. A contract can be considered illegal if it relates to any illegal purpose.
Certainty
Certainty is another most important element of a valid contract, and it is a must in a valid contract. A valid contract needs to have reasonable certainties for its necessary terms. In case the parties of an agreement fail to reach an agreement on its essential terms, which have reasonable certainties, the agreement can be considered void.
4.2. Evaluation of dispute resolution
There are multiple ways by which alternative disputes of a contract can be resolved, and these ways are discussed below:
- Arbitration
Arbitration is one of the prime methods of alternative dispute resolution. The process of arbitration releases a decision based on legal binding at the end of the process. Arbitration occurs when both the parties come on a similar page, such as agreeing to the terms whether before or after a dispute. It is similar to litigation at some point. However, it is a faster process. As opined by Myra & Makori (2021, p.4), the clauses of “agreement to arbitrate” are often included in written contracts that have been agreed by both parties. The process of arbitration can involve many components, such as a trial in a courtroom.
- Collaborative law
Collaborative law is another method that assists in the resolution of a dispute among two parties of a contract. This process intends to avoid the formal process of litigation. In this type of method, both the parties involved in a dispute commit not to adopt the litigation process and sort out the dispute without going to court. According to the view of Waszkowski & Nowicki (2020, p.551), in this method, the solution is encouraged by designing a settlement between both parties. This method involves all the attorneys organizing meetings in which all the negotiations take place. In this type of dispute resolution, both the parties meet to agree upon collaborative laws. This assists the parties in identifying common goals of the project and guides them to work accordingly.
5. Conclusion and recommendation
Recommendation
To upgrade/enhance the contract management, there are some powerful recommendations, as follows –
- i) Risk assessment: For avoiding financial, environmental, and situational hazards; Risk assessment is one of the important recommendations in Contract management. Sometimes, economic disturbance, ecological disasters like earthquakes, floods, or industrial disasters like labor problems can disrupt the government. Therefore, risk assessment development can be considered as a major recommendation for the five-storied building construction process for succeeding.
- ii) Create proper planning: Proper planning is another top recommendation in contract management for keeping the whole process on time. Though the planning has been completed, considering the deadline, a timetable is necessary for the management and employees. Simultaneously, the contract manager should keep in mind the light and air-related difficulties in surrounding buildings.
iii) Effective Communication: Effective Communication tied with collaboration is one of the fruitful skills for Contract Managers. Effective communication is the key to understanding the deal’s entire assignments, complication issues, and obligations for the stakeholders. Similarly, through effective communication, the management can understand different expectations, complications, and responsibilities. It should be cleared that the procurement process was appropriately done and followed by the procedures.
- iv) Rigorous inspection and Monitoring Methods: One of the organization’s responsibilities is rigorous inspections or reviewing the entire process from time to time. As stated by Wang et al., (2019, p.653), the proper plan will be fruitful at the appropriate time, so a thorough inspection is recommended for contract management through the continuous assessment of the manager. Direct observation like physical observation and indirect observation like reviews, reports, testing are also recommended in contract management.
- v) Receipt Procedure: Receipt procedure or checking the bill on time is highly recommended to avoid financial problems. Verification of product quality, destructive tests, dimension checking are the pivotal issues of the process. The recipes like proof of payments received materials and contract files should be cleared by the manager.
- vi) Financial Supervision: In Contact Management, to supervise the economic department, at least one financial supervisor is also recommended. According to Wang (2020, p. 330), the economic department is one of the keys to any management and, at the same time, the project’s pillar. So, to secure the economic department and keep the project safe, the financial supervisor is recommended. Following the terms of the contract, timely payment like advance, partial, final payment is needed. As followed by Safa et al. (2017, p.52) progress reports, meeting with the stakeholders is recommended to supervise or visualize the deal or plan.
vii) Underground parking construction and traffic management: For the five-storied building in UK, car parking is a major issue, and for this, underground parking is the simplest way to recommend. Simultaneously, to avoid disrupting in rush hour, traffic management is also recommended with proper CCTV checking.
viii) Documents storage with sharing: Lastly, to keep the entire project safe and secure, the legal documents, billing, paperwork statements, planning papers are needed to be documented in proper storage. Sharing the whole document is also recommended to avoid any hazards, like losing a file or legal documents at a crucial time.
Conclusion
Based on the analysis, the study concludes that the project completion’s key factors are very important. The key elements are identifying, short listing and selecting the appropriate constructor for the construction of the project. However, after choosing the proper contractor, problems arise with the help of recommendation problems that can be mitigated. Recommendations are risk assessment, create appropriate planning, keeping in mind difficulties face by the surrounding, effective communication with internal and external stakeholder, Rigorous inspection of the on-going project, receipt procedure, financial supervision. Underground parking construction, traffic management, document storage with sharing, and a contract management adviser’s appointment can also be beneficial for mitigation. Verifying the legal documents and the contractor’s license is a must for the success of the project.
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