construction contract management

Contracts are a fundamental component of construction management. To deliver major infrastructure projects, thousands of people from different companies need to work together and collaborate effectively to get the job done. For all these parties to work together, there needs to be an agreement between them. The parties need to agree on the nature, scope, and commercial aspects of these relationships. Contracts facilitate this agreement by recording and documenting the rules for how parties must interact. Contracts are legally enforceable, meaning when parties break the rules, the courts will enforce them.

Therefore, a contract can simply be thought of as a legally binding promise between parties. These legally binding promises facilitate co-operation. Without them, parties would not have the same confidence in each other. Imagine, if, at the end of a project, a client refused to pay a contractor because they did not need the contractor anymore? Or a contractor refused to return to rectify any defects after they had been paid? Contracts ensure that this will not happen.

Collaboration is fundamental to project success. It allows companies access to increased resources. Major construction projects are large and complex. No single company has the internal resources available to complete these sorts of projects and therefore, they will always need to outsource some scope. Outsourcing scope leads to increased efficiency and access to competitive prices. Contracts facilitate this process of collaboration and outsourcing scope.

WHAT ARE CONTRACTS?

A contract is a legally enforceable promise. This means, that the terms and conditions agreed to and documented in the contract will be enforced by the legal system, i.e. the courts. For a contract to exist between two parties, there have to be certain characteristics to the agreement. What this means, is that the courts will enforce some agreements but not other agreements based on how the agreement was made. When you think about it, this makes a lot of sense; the courts will not enforce a promise your little brother made to you to lend you his bike, but they will enforce an agreement made in writing between two large corporations.

For a contract to exist between two partiers, it requires:

  • Offer – one party to make an offer to do something to another party. For example, to sell my car for $5000

  • Acceptance – the other party to unconditionally accept this offer

  • Consideration – something of value to pass between the parties, i.e. the $5000

  • And there has to be an intention to create legal arrangements, so was this an agreement between friends while drinking? Or did this agreement take place at a car dealership where both parties intended for it to be an enforceable agreement?

examples of contracts on construction projects

Construction Project

Multiple different commercial arrangements existing on construction projects. To illustrate this, we will use an example. Let's imagine a state government wants to build a new highway between two towns. The government's transport department comes together, with the support of consultants, and decides to a reasonable level of accuracy, exactly what they would like done; where the road will roughly go, how many lanes it will have etc. 

The government then finances the project and starts preparing to engage a general contractor to build it for them. They take their plan of what they want to be built, referred to as a concept design, and write a detailed scope of works and specifications and collate this information into a tender package. They then issue this tender package to the market where general contractors can submit quotes and delivery methodologies.

Once the general contractors have submitted their tender responses, the state government will assess these proposals and select their preferred contractor. They will then negotiate and sign a contract with this contractor. This contract is known as the head contract. It will define how much the general contractor will be paid, what they have to build, how long they have to build it, and any specific performance requirements. 

Now that the general contractor has a signed agreement, they will be ready to start works. To complete this project, they will need consultants to provide technical expertise to design the road and sub-contractors, also known as trade-contractors, to build it. The head contractor starts drafting and running mini-tenders of their own. They need to find and select different sub-contractors to complete earthworks, concrete works, line marking, craneage, and so on. As they select sub-contractors, they will sign sub-contract agreements.

As you can see, hundreds of different contracts could potentially be signed and in place on a major project, and thus, to be an effective construction engineer, you need to understand what these contracts are and how to manage them. You need to understand the rules of engagement between all these parties to facilitate the smooth performance of the project.

CONSTRUCTION CONTRACT MANAGEMENT COURSE

To help you learn how to use and manage construction contracts in the real world, we have developed a short and practical course that teaches you the fundamental skills you will need to know. The course has short, engaging lectures, practice activities, and quizzes. It contains over three hours of content and is broken down into four sections.

Section 1 covers an introduction to construction contracts including:

  • Why contracts are a fundamental part of construction projects

  • The law

  • The formation of construction contracts

  • The formation of construction contracts

  • The essential elements of a construction contract

  • Administrating construction contracts

  • Allocating responsibility

  • Forms of construction contracts

  • Construction claims

Section 2 then moves on to cover the different components of a construction contract including:

  • The scope of works

  • Payment

  • Security

  • Quality and Defects

  • Insurances

  • Time

  • Default and Termination

  • Penalties and Rewards

  • Disputes

Section 3 covers head contracts, so the contract between a client and a general/head contractor, including the following content:

  • Forms of the head contract

  • Formation of the head-contract

  • Administrating the head-contract

  • Risk management

  • Claims and disputes

Section 4 covers sub-contracts, so the contracts in place between a head-contractor and their sub-contractors, including the following content:

  • Forms of sub-contract

  • Formation

  • Administration

  • Risk management

  • Claims and disputes

If you think you would find this course valuable, check out the below link where you can trial and buy the course:

https://www.udemy.com/course/contract-management-for-construction-management-professional/?referralCode=BC8BA54ED4226182E26B

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