A Guide for Implementing Effective Contract Management

Are there any projects without a single change order or EOT or cost overrun? Could any project manager truthfully reply ‘Yes’ to this question? Doubtful. His reply would more likely be about the number of change orders he handled during his tenure or the entire project and the same about Extension of Time and cost overruns. In other words, change orders and EOTs and cost overruns are practically inevitable in today’s projects, despite an approved budget and timeline, scope document, an approved list of makes, signed-off Ts and Cs, BOQ, and drawings.

At the beginning of a project, the purpose of implementing a Contract Management strategy is to:
• Spend less time and money on claims and litigation
• Ensure regulatory and policy compliance measures are met
• Measure contractor and project performance
• Pay contractors on time
• Avoid contract leakage
• Track correspondence
• Monitor contractor behavior

A comprehensive implementation of pre-award activities lays the foundation for the successful monitoring of post-award activities and ensuring the contractor/supplier's ability to fulfill the terms and conditions also plays a vital role in the pre-award stage. The purpose of setting up the contract agreement should be clear to all stakeholders and drafting the contract agreement must ensure completeness of scope because a minor miscommunication in the contract agreement can lead to major disputes between stakeholders.

With many differences in perception among the participants of the project, conflicts are all too common and those conflicts can quickly turn into disputes if they are not managed properly. Those disputes become one of the main factors against the successful completion of the project. Thus, it is important to be aware of the causes of disputes in order to complete the construction project as per the scope.

Examples of contractual disputes are:
• delays in work progress
• time extensions
• inadequate / incomplete specification
• quality of design
• design errors
• performance of contractors

These contractual disputes can come from the owner, contractor, design, contract clauses, human behavior, or project-related external factors like weather, legal and economic factors. When we closely observe these factors it becomes evident that the completeness of the contract agreement and its definition of scope, and communication among stakeholders together play a vital role in implementing the contract management. Good communication can improve teamwork and lead to better project collaboration while Poor communication can result in misunderstandings, delays, and issues down the road. Hence, the most important contractual clauses of the contract sum, payment terms, change management, claims need to be taken care of right from the beginning.

How to do successful contract management?

Every member of the project is responsible for the successful implementation of the contract management strategy. The following activities can ensure effective contract management:

• Compiling contract document using a checklist – to be vetted by finance, legal, and compliance team
• Ensure all activities of the project are as per the mutually-signed contract agreement
• Preparation of payment certificates by checking that all supporting documents are as listed in the contract.
• Updating payment trackers
• Monitoring the RFIs, technical submittals, substitution requests, sample approvals, etc.
• Timely preparation of change orders and approvals of the same by the owner

The benefits of digitalizing Contract Management

Contract documents are still stored as hard copies in most projects and this hinders limits access, leaves documents and their supporting files disconnected, lacks visibility and transparency, and doesn’t support proactive tracking and management of contract approvals, status, renewal dates, automated renewal clauses, and milestones. Companies that digitize contracts management see these benefits:

• Optimization and securing of the location, protection, organization, search, and sharing of contracts.
• Centralized control.
• Improved accountability via electronic workflows
• Increased productivity.
• Simplified contract management by notification systems for renewal of approvals, policies, bank guarantees, etc.
• Virtually unlimited storage for contract data and contract documents.