BBE 515 CONSTRUCTION CONTRACT ADMINISTRATION

1. BBE 515 CONSTRUCTION CONTRACT ADMINISTRATION • Managing construction contracts, • technical and human skills required and • styles of management Kang’ethe J. W. Reg. No.B50/71317/08 Lecturer: B. N. Kithinji

2. MANAGING CONSTRUCTION CONTRACTS • Definitions • Management is the set of activities (planning, organizing, leading and controlling) directed at the organization’s resources i.e. human, financial physical and informational, with the aim of achieving the organizational goals, in an efficient and effective manner, K. Mukherjee. (2006) • Construction contracts are the agreements between services providers (contractors) and the clients. The client is the promoter or the project initiator. He develops a need for a structure, establishes his requirements and provides resources that are required for the realization of the project • The contractor assembles resources into the final product

3. Definitions Cont’d • In Modern Engineering (Bristol) Ltd v. Gilbert-Ash Northern [1974] AC 689, Lord Diplock at 717B described a building contract as: ‘an entire contract for the sale of goods and work and labour for a lump sum price payable by instalments as the goods are delivered and the work done. Decisions have to be made from time to time about such essential matters as the making of variation orders, the expenditure of provisional and prime cost sums and extension of time for the carrying out of the work under the contract.’

4. History of construction contracts • Formal construction contracts have been around since 1870, J. Murdoch and W. Hughes (2001). • Between 1200-1600 AD construction work was undertaken by master craftsmen organized into guilds.

5. History of construction contracts cont’d • By 1800 AD the contracting system emerged and many works required designs to be complete, including estimates for materials and labour. • This marked the begging of construction contracts as we know them today S.L. Gruneberg (1997). • Managing such contracts comes with many short falls which can be termed risks. The following are some of the risks:-

6. Construction risk • Owner’s risk is due to the following factors: • Will the contractor be able to carry out work as per specifications • Can the work be completed within quoted cost and time. • Will the plant/project perform at the required level • Will the contractor stay on job till its completion • Will the contractor co-operate with the owner and rectify defects later • Will the relationship click • Does he understand his intent fully

7. Construction risk cont’d • Contractor’s risk is due to the following factors: • Termination of work before its completion • Prompt payments • Reimbursement for extra claims • Penalization for failures beyond his control. • Interruptions in progress and change of scope • Compensation for pure escalation.

8. Construction risk cont’d Other construction risks include • The unforeseen : • unexpected ground conditions • unpredicted weather conditions • a shortage of materials in the market • a shortage of skilled labour • accidents, whether by fire, flood or carelessness • innovative design that does not work or proves impossible to construct. • The length of the contract.

9. Construction risk cont’d 2. Projects vary in the time needed for completion, from days to years. During that time the risk allocation agreed at the time of contracting can change substantially. This is especially so with regard to the availability of materials and its costs. A contractor may have ‘bought’ the job because work was scarce at the time and the price of components was low.

10. Construction risk cont’d 3. The number of participants, and parties in the project and the corresponding length of contractual chain cause their own problems. The risk of insolvency increases, the longer the chain. 4. The particular relationship (often referred to as a triangular relationship of costs, time and quality) in which conflict is inherent. Contracting parties have different perceptions of how these factors of their relationship interact.

11. Construction risk cont’d 5. The interaction between liability for defective workmanship and for faults in design. The Latham Report in item 3.10 identified the lack of coordination between design and construction as a common source of dispute. Much of the innovation in procurement systems of recent years stems from creating ways of minimising the effect of this clash.

12. Construction risk cont’d • construction contracts are drawn to ensure duties, responsibilities and risks are shared and distributed amongst the project participants. The use of standard forms of agreements has been developed and generally adopted in the construction industry to help guide the relationships between the parties and also to ensure construction projects are managed in a sound and effective way. The adoption of a suitable form of agreement, its implementation in executing the work until project close out is the gist of construction contract management.

13. Standard forms of construction contracts • They are standardized construction contracts documents which can be adopted by contracting parties depending on the type and nature of the project and client body. • They are widely used in the industry. • They are formulated by industry players (associations) usually to reduce the incidence of disputes

14. Standard forms of construction contracts • Standard forms of construction contracts have been criticized by courts ‘for being unnecessarily obscure and verbose. But in fairness one should add that it is sometimes the courts themselves who have added to the difficulty by treating building contracts as if they were subject to special rules of their own.’ Lord Lloyd of Berwick in Beaufort Developments (NI) Ltd v. Gilbert-Ash (NI) Ltd [1998] UKHL [1988] 1 AC 191

15. Standard forms of construction contracts • There are, however, many advantages to be gained by using a standard form of contract. Advantages • The standard form is usually negotiated between the different bodies that make up the industry. As a result the risks are spread equitably. • Using a standard form avoids the cost and time of individually negotiated contracts. • Tender comparisons are made easier since the risk allocation is same for each tenderer. Parties are assumed to understand that risk allocation and their prices can be accurately compared.

16. Standard forms of construction contracts Disadvantages • The forms are cumbersome, complex and often difficult to understand. • Because the resulting contract is often a compromise, they are resistant to change. • Much-needed changes take a long time to bring into effect.

17. Special features of a construction contract • The carrying out and completion of this contract (whether made using a standard form contract or other) differs from other manufacturing processes. Lord HHJ Newey in Emson Eastern v. EME Developments (1991) 55 BLR 114 described the differences atp. 125, within the context of practical completion of the work as follows :

18. Special features of a construction contract cont’d • ‘I think the most important background fact which I should keep in mind is that building construction is not like the manufacture of goods in a factory. The size of the project, site conditions, the use of many materials and the employment of various kinds of operatives make it virtually impossible to achieve the same degree of perfection that a manufacturer can. It must be a rare new building in which every screw and every brush of paint is absolutely correct.’

19. Special features of a construction contract • As a result of the nature of construction projects themselves, the construction contracts are: • Fluid and slippery until the works get completed • Involve very many parties who have a bearing on the main contract e.g. subcontractors, suppliers etc

20. Special features of a construction contract cont’d • A construction contract will usually include several documents which are read and construed as forming part of the principle agreement. These documents will include:- • Letter of invitation to tender • Instructions to tenderers/bidders • General conditions of contract • Special conditions of contract • Technical specifications

21. Special features of a construction contract cont’d • Scope drawings • Bill of quantities • General information about the site • Form of tender • Form of agreement • Appendices.

22. Types of contracts • There are two main types of contracts in the construction industry. • Professional service agreements - to secure the services of professionals • Construction agreements – to secure the services of the contractors

23. Types of contracts cont’d • 1.0 Main contract agreement and • 2.0 Sub contract agreements – these are further broken into domestic and nominated sub-contract agreements. • The main contract comes in many forms i.e. • Traditional form, • Design build and its variants

24. Types of contracts cont’d The many contracts that have to be executed in a project lead to ambiguity in relation to; • Responsibility sharing, • Legal relationships • Work relationships • Allocation of rights and blames on site • Payments • Delegation of duties etc

25. Types of contracts cont’d • It is against this background that a construction contract should be formulated and managed to take care of the interests of each party.

26. Stages of Contract management Pre-contract stage • This involves the definition of the work to be carried out. In this case the manager/lead consultant will do the following:- • Define the scope and quality of the work (interpret the brief). • Allocate each task/ group of tasks to respective participants • Choose the procurement method • Choose the best form of contract • Ensure timely completion or substantial completion of tasks assigned before advancing to the next stage. • Over see the preparation of contract documents which essentially marks the beginning of construction contract management.

27. Stages of Contract management cont’d • These documents will include:- • Letter of invitation to tender • Instructions to tenderers • General conditions of contract • Special conditions of contract • Technical specifications • Scope drawings • Bill of quantities • General information about the site • Form of tender • Form of agreement • Appendices. • Close out this phase and inter-marry it with the next phase.

28. 2. Managing contracts at post contract stage • Upon contract award, the project manager will have to device a system of contract management during construction. Such a system will ensure early detection of contentious issues in the contract or work. • The bulk of post contract administration is built into the construction agreement and little or no changes can be done to the agreed and signed contract. The main work of the contract manager will be to interpret the obligations, rights and responsibilities of the parties to the agreement at this stage

29. 2. Managing contracts at post contract stage cont’d • The manager shall ensure that the parties to the contract perform their obligations effectively e.g.  Obligations of the contractor • Good standard of work – workmanship, materials, suitability of materials, suitability of the building • Statutory obligations- hoarding, dust screens, health and safety measures • Coordination and management of the work- entry and exit from site, workers, subcontractors • Insurances and bonds 

30. 2. Managing contracts at post contract stage cont’d Obligations of the employer • Non hindrance and cooperation • Payment • Nomination of others not employed by the contractor to undertake work • Site obligations – possession, delineation and identification, condition • Insurance and bonds • The other areas of concern during the post contract period are the procedures, relationship and process issues. Such issues include; • How to effect change orders • How to apply for, payments, partial handing over etc

31. 3. Managing contracts at post completion stage • There are a number of concerns that should be addressed after completion depending on the type of the project:- • Final payments • Handing over • Inspection – on attaining practical completion and final • Rectification of defects

32. 3. Managing contracts at post completion stage cont’d • Final measurements and closing of accounts • Shop drawings • Surrender of bonds and insurances • In-use inspection and reporting • Defects liability period issues • Health and safety issues arising from the works • Settling disputes internally or in arbitration or courts of law.

33. SKILLS REQUIREMENTS • The management of construction projects require technical skills, human skills and conceptual skills. • Technical skills refer to the manager’s craftsmanship and or technical role and proficiency in some aspect of the project or organizational work. It includes the acquisition of certain analytical abilities, specialized knowledge and techniques much of which the manager’s previous training may have centered on, developing the skills and knowledge in the technical field of construction. Barry Fryer et al (2004). They are necessary to accomplish the specific organization work e.g. budgeting or designing.

34. Skills requirements cont’d • Since it is not possible for the manager to have the fine skills in all the specialist areas of construction, he must pool together only the best team players who are capable of team playing, knowledgeable and experienced in the industry •  A Construction contract managers requires these skills for effective contract management. He must therefore harness them from his team members (resources)

35. Practice of Project Management Skills needed in of a Project Manager/ Contract Administrator • Ability to identify desired outcomes and deliverables • Identify what is wanted • Ability to evaluate needs and wants of various parties and stakeholders • Ability to maintain clarity of what is needed BBE 515: construction contract administration

36. Skills needed in Project Management • Ability to devise a sequence to achieve the goal • Identify ways of achieving goals • Evaluate goals and choose best option • Identify and choose appropriate strategies • Identify required resources • Evolve appropriate sequence of activities BBE 515: construction contract administration

37. Skills needed in Project Management • Ability to develop confidence that what is wanted and the path or sequence of activities chosen to achieve it will deliver the desired results • Ability to recognise when the desired work has been done to the required standard and ability to institute project close-out procedures BBE 515: construction contract administration

38. Skills needed in Project Management • Ability to deal with people /man management skills • Project sequences entail considerable interactions • Need for clear lines of communications • Maintenance of high morale (motivation) • Ability to work with and manage teams • Terms that define these skills include “listening”, “team building”, “managing industrial relations”, “maintaining political support”, “obtaining commitment” BBE 515: construction contract administration

39. Skills needed in Project Management • Ability to manage unfamiliar complex systems and technical specialists • Ability to manage specialists from a wide range of disciplines • Ability to escape captivity from parent discipline and maintain an overarching view of the project • Possession of requisite vocabulary to communicate with ease with all • Refined “people skills” BBE 515: construction contract administration

40. Skills needed in Project Management • Ability to identify key issues from a plethora of data • Projects generate a huge volume of data • ability to use information with discretion • Select most important information and leave out unimportant • [“select wood from the trees”] • [Pareto principle – 80/20 rule] BBE 515: construction contract administration

41. Skills needed in Project Management • Ability to respond to contingent situations • project manager faces changing and unexpected situations • PM is always trying to keep project on track or pull it back on track • Plans often need to be changed or adjusted • Flexibility and ability to respond quickly • A frame of mind that quickly works out solutions to problems [ability to think on one’s feet] BBE 515: construction contract administration

42. Skills needed in Project Management • Ability to identify and manage interfaces • Maintaining an overview and managing interrelationships between parts of the project • [interfaces occur where lines of responsibility between consultants or subcontractors meet or fail to meet] • [Common terms used to describe failure of interface management – “right hand does not know what the left is doing”, “clashes of services”, “falling between two stools”] BBE 515: construction contract administration

43. Skills needed in Project Management • Ability to manage Time and Cost • Ability to set up and manage the project information system • Ability to set up new office from scratch • Decisions on how data is to be managed (captured, stored, retrieved, used) • Set up and maintain project communication regime • Choice of appropriate information technology for project BBE 515: construction contract administration

44. Skills needed in Project Management • Ability to manage political and community issues • Projects bring changes to peoples’ lives and affect interests, so strong forces exist • Community and political issues strongly influence outcomes and are major threats to projects • Phrases that go with this function are: “public relations”, “impact assessment”, “impact statements”, “managing stakeholders” BBE 515: construction contract administration

45. Skills needed in Project Management • Ability to manage contract matters and contract strategy • Projects usually involve many contracts and contractual matters can get very complex • [managing sub contractors, liquidated damages, claims] BBE 515: construction contract administration

46. Skills needed in Project Management Skills needed in Project Management • Ability to maintain a sense of urgency • Should recognise the need to drive the project and keep it going against odds • Always trying to push the project sequence to the next level • Requires energy and enthusiasm BBE 515: construction contract administration

47. Skills requirements cont’d • Human skills are the ability of the manager to work as a group member and to build cooperative effort in the team, to communicate and persuade. • Managers with good human skills are aware of their own attitudes and assumptions about people and are skilled in understanding and influencing people. Barry Fryer et al (2004). • K. Mukherjee (2006) adds that human skills are interpersonal skills and should include communication, leading, influencing and motivation so that the people can perform and achieve the organizational goals.

48. Skills requirements cont’d • Conceptual Skills is the managers ability for abstract thinking. • He needs the capacity to understand the overall workings of the organization and its environment, • And to comprehend how the organizational parts and their functions fit together, • and to view the organization in its entirety

49. MANAGEMENT STYLES • The management style adopted by a manager has a clear relationship with how effective the team is going to be. A good manager will have his goals clearly set, tasks clearly spelt out and shared amongst team members and work towards bonding the team to achieve the common goals. Management and Leadership   • Though the terms 'management' and 'leadership' are often used interchangeably, there are certain fundamental differences between these two. Leadership does not necessarily take place within the hierarchical structure of the organization and there is a clear implication that leadership is not part of the job but a quality that can be brought to a job.

50. Management Styles cont’d K. Mukherjee (2006) lists at least six fundamental differences between management and leadership. • A Manager administers, but a leader innovates. • A manager maintains, while a leader develops • A manager focuses on systems and structures, whereas a leader’s focus is on people. • A manager relies on control, but a leader inspires trust. • A manager keeps an eye on the bottom line, while a leader has an eye on the horizon. • A manager does things right, a leader does the right thing. • For purposes of the construction contracts, we look at leadership as a necessity for all managers and as such while we know that management involves planning, organization, leading and controlling, we consider what others call styles of leadership as the management styles.