An Introduction to Contract Administration
When my daughters were kids they used to ask me what I do at my work place, and my usual reply was “quantity surveying”. Of course they would then ask what quantity surveying is, and I would ramble on about measuring and bills of quantities and monthly accounts and so on and so forth, but they always wanted to know whether that is all that I do. Later in life, I used to tell them that Quantity Surveyors are Contract Administrators and that they do much more than measuring and accounting. I have no doubt that your kids too ask you similar questions. It may also have occurred to you that, who are ignorant about what Contract Administration is, are not only kids but also many adults who are our associates. This article would assist you to give an introduction to others, about Contract Administration.
What is Contract Administration? In order to answer this question, it is necessary to know what a contract is. The nature of a contract could range from a verbal agreement between a Customer[1] and a Supplier[2] for the provision of a product or a service costing a few Dollars, to a signed sealed and delivered formal agreement for the construction of an airport facility by a Contractor[3] in consideration of a multibillion Dollar payment by an Employer[4]. A contract, regardless of whether it is verbal or written, generally comprises of details such as the scope of product or service to be provided (or facility to be constructed) by one party, the price to be paid (or any other consideration) by the other party, the time within which the parties should perform their obligations, etc.
In a perfect world, the parties would have discharged their obligations exactly as agreed in the contract and lived happily ever after! But this is not the reality. Suppliers/Contractors often do not produce the agreed services, products or facilities in a timely manner and/or in compliance with the agreed quality requirements whilst Customers/Employers often do not oblige with timely and/or appropriate payments. The project costs often exceed budgets. Consequently, it has become increasingly necessary for each party to a contract, to ensure that its interests are protected by monitoring constantly, its own activities and the activities of the other party as to timely performance, compliance with quality requirements, cost management etc. This process is termed Contract Administration.
If the contract is an LPO (Local Purchase Order) for 2 reams of photocopy paper, the customer’s Contract Administrator has to monitor whether the supplier is delivering in time, whether the quantity is correct and whether the quality of the paper is as specified in the LPO. His/her duty also includes reporting the supplier’s compliance or non-compliance with specified requirements to his/her management, proposing remedies for non-compliance, and finally authorizing an appropriate payment based on the terms and conditions of the LPO.
The supplier’s Contract Administrator would also need to perform similar duties for his/her management and finally advise on the amount to be invoiced based on the terms and conditions of the LPO, and using the delivery note (with customer’s signature on it) as proof of performance.
Both these Contract Administrators would also need to be adequately knowledgeable to understand and explain, when required, the terms and conditions of the LPO including those of small print, if any.
However, if the Contract is for a large civil engineering or building project and, if the Form of Contract[5] used is a standard domestic[6] or international[7] model form in existence, the duties and responsibilities of the Contract Administrators become still more complex. Since the conditions of contract are not fully comprehensive, they need to be read in conjunction with the governing law of the contract and many legal principles, in order to obtain the correct interpretation thereof. This is a competence that every Contract Administrator is required to posses. An alternative would be to obtain the services of Lawyers as and when such interpretations are required, which would no doubt, prove to be quite expensive.
Ideally, the Contract Administrator should therefore be qualified and experienced in the type of service, product or facility for which the contract is made and, be adequately competent in understanding the provisions (terms and conditions) thereof. Since it is not practical for a single person to provide all Contract Administration functions of a party, in a construction project, it is customary to form a multidisciplinary team to undertake such functions.
Contract Administration on behalf of the Employer
Without an employer, a project does not exist. It is the Employer who pays to have the Works executed. Therefore, the Employer’s Contract Administrator has a grave responsibility to ensure that the Employer’s interests are protected at all times, in addition to ensuring that the Employer’s obligations under the Contract are properly fulfilled in a timely manner. These objectives could be achieved only through systematic Contract Administration procedures, which every Employer should implement in its organization.
Documented procedures, regular monitoring, proper controls, adequate records, timely corrective and preventive action are all essential tools for an efficient Contract Administration system.
Some of the Contract Administration functions, on behalf of the Employer, are carried out by the appointed Engineer during the performance of the Engineer’s duties under the Contract. But there are many other Contract Administration functions and Employer’s contractual obligations, such as establishing Commencement Date, making payments, obtaining planning permission, giving possession of Site, limiting the Engineer’s authority under the Contract, providing information, serving notices, obtaining adequate insurance cover, monitoring the performance of the Engineer, giving consents, approvals, instructions etc., which the Employer itself should perform. The Employer’s Contract Administrator is expected to provide appropriate and timely advice on these matters, to the Employer.
Usually the Employer’s Contract Administrator for the post contract stage is a permanent employee of the Employer’s organization, who has already acted as the Contract Administrator for the pre-contract stage. He is fully aware about all the events which led to the Contract. In large organizations, the Employer’s Contract Administration functions are sometimes entrusted to more than one person. An engineer would monitor construction aspects whilst a quantity surveyor would be involved in cost management and procurement functions and a services coordinator in obtaining planning & utility authorities’ approvals etc.. Occasionally the Employer’s Contract Administration is entrusted to an independent Consultant.
Contract Administration on Behalf of the Contractor
The Contractor engages a massive amount of resources to construct the Works. It is not an easy task to ensure that all such resources are properly controlled to produce optimum returns. In addition to performing all the Contractor’s obligations stipulated in the Contract, it is imperative to carry out all other Contract Administration functions (required to protect the Contractor’s interests) in a proper manner in order to avoid losses and bankruptcies, which are not uncommon in the construction industry.
Usually, those who were involved in the pre-contract stage (in preparing the Tender and/or in negotiating the Contract) undertake some of the Contractor’s Contract Administration functions, specially the cost management, in order to ensure that the final costs are within the forecasts. But the majority of the Contractor’s Contract Administration functions are entrusted to the Site Agent. He in turn delegates some of these functions to his assisting staff such as, Site Engineers and Site Quantity Surveyors.
It is not a common occurrence for the Site Agent and his staff to be involved in the pre-contract stage of a project and as such, they must familiarize themselves with the events that led to the Contract, before they commence their Contract Administration functions.
Although the Engineer performs some of the Employer’s Contract Administration functions as part of his duties under the Contract, it should be noted that the Engineer has neither the authority nor any obligation to perform the Contractor’s Contract Administration functions.
Planning the activities, managing the resources efficiently, effective communication, maintaining records and claiming all the Contractor’s dues are but a few functions that the Contractor’s Contract Administrator should perform in addition to appropriate and timely performance of the Contractor’s obligations under the Contract. During this process, the Quantity Surveyor plays a vital role in providing professional services including expert advice to all other members of the Contractor’s Contract Administration team.
Contract Administration by the Engineer
Since Employers generally are not experts in the fields of engineering and construction, it is essential to entrust the supervision, inspection, certification, financial/quality control, programme management and dispute adjudication duties to professionals who are experts in these fields. Generally this is done by appointing an “Engineer” and his team.
The Engineer could be a civil engineer with Contract Administration experience, if the project is of civil engineering nature. For a building construction or landscaping project, the Engineer could even be an architect with Contract Administration experience. Always the Engineer obtains advice from a Quantity Surveyor (or QS team), on several aspects of Contract Administration such as financial/cost management and claims management. It is also customary for the Engineer to rely on the expertise of the Quantity Surveyor on matters of contractual interpretations and dispute adjudication.
Generally, the appointed Engineer is the same Consultant who designed the project during the pre-contract stage, but this is not a compulsory requirement. It is not uncommon in the industry to award the post contract functions of a project to a different consultant than the one who designed and completed the pre-contract phase. In such circumstances it is very important that the Engineer and his team should study all matters that led to the Contract.
The Contract Administration functions of the Engineer should be described within the provisions of the contract to be signed between the parties, but if the Form used for such contract is a Standard Form such as FIDIC, then further describing is generally not required.
- Dr. Sam
[1] Also known as “Purchaser”, “Buyer”, “Vendee” etc.
[2] Also known as “Seller”, “Vendor” etc.
[3] Typical term used in the construction industry for an individual or a company who undertakes to construct the work/project
[4] Typical term used in the construction industry for the owner/developer of the construction work/project.
[5] A model document, (generally published by professional bodies), which could be used by Employers and Contractors with or without modifications.
[6] Where the Employer and Contractor are of one nationality and the construction project is situated within their country.
[7] Where the Employer and Contractor are of different nationalities and/or the construction project is situated outside the country of one of theirs.