Procurement Advise & Contract Selection

 

At the early stage of a project and once a project manager is selected, the main issue that faces the owner is to decide on the contract strategy that best suits the project objectives. Contract strategy means selecting organizational and contractual policies required for the execution of a specific project. The development of the contract strategy comprises a complete assessment of the choices available for the management of design and construction to maximize the likelihood of achieving project objectives. The scope of such contracts is very wide, from a simple purchase of standard project to multi-million pound projects. The size and complexity of the contract matter vary accordingly. 

 

A proper contract strategy for a project involves four key decisions: 

  • Setting the project objectives and constraints 

  • Selecting a proper project delivery method 

  • Selecting a proper contract form / type 

  • Contract administration practices 

 

1 - What is a Contract 

A contract is defined as: "an agreement made between two or more parties which is enforceable by law to provide something in return for something else from a second party". Contracts can be very simple or they may be very long and complicated legal documents. When a contract is properly set-up it is legally binding upon. The two parties are expected to perform the various obligations they have undertaken, as expressed in a mutually agreed set of contract documents. A contract therefore, is necessary to protect both client and contractor. According to its simple definition, a contract is an agreement enforceable at law, but not all agreements are contracts. Some elements must be present before an agreement becomes a contract. These elements are: 

  • Competent Parties: For an agreement to be a contract, there must be two or more competent parties. In order to be considered competent, a part must have a certain legal standing. 

  • Proper Subject Matter: For the subject matter of a contract to be proper, the first requirement is that it was be clearly defined as to the rights and obligations of each party. Second, the purpose of the contract must not violate the law. 

  • Consideration: There must be a lawful and valuable consideration given b both parties. A consideration often called "Something for Something." A consideration must, also, be possible. 

  • Agreement: For valid contract, there must be a mutual agreement. An agreement is considered to have been reached when an offer made by one party is accepted by the second party. Both parties must wish and intend their bargain to be enforceable by law. 

  • Proper Form: The terms of a contract must be written so that both parties are very sure of what their rights and responsibilities are. 

  • Consent of the Parties: The agreement must be free from: Misrepresentation, Duress Undue influence, etc.  

 

2 - Selectionof Contract Type

The selection of contract type to be used for a construction project is made by the owner, acting upon the advice of his Engineer and his legal advisor. The selection must meet the owner Objectives and takes into account the constraints that might relate to the project. Consultants and contractors should be fully informed by the project objectives and constraints. The scope and the nature of the project will primarily affect the selection of type of contract.