Sound contract management principles are crucial for effective and efficient contract execution. These principles enhance accountability, transparency and trust, leading to more successful project outcomes for the parties involved. Effective contract management begins with clear and robust contract documentation including early communication of expectations to stakeholders across the supply chain. This includes accurate data and records of contract documentation, including project deliverables. Additional best practice principles include establishing transparent communication, a fair collaborative approach to contract administration and the correct interpretation of contract clauses as intended by the contract from the pre-contract procurement phase to post-contract agreements.
In this output, the steering group sought to delve deeper into sound contract management principles.
Good contract management principles involve establishing a common interpretation of contract clauses and requirements to ensure that all parties comply with their contractual obligations. For example, on construction contracts, the NEC contract specifies detailed requirements, such as deadlines for project milestones and expected standards for using sustainable materials. Alternatively, other contract forms might be less specific but still impose a general duty to perform certain actions with due care.
Failure to meet these obligations can result in a breach of contract, leading to increased costs and legal claims for both parties. Therefore, good contract management involves ensuring that the parties to the contract have a common understanding of the interpretation of clauses, time, cost and quality expectations to prevent breaches. For instance, on large-scale infrastructure projects, the project management team should use the contract as a guide throughout the project lifecycle, ensuring compliance from the onset and addressing any issues promptly. effective contract management principles mean establishing a contract that both parties intend to administer correctly and not merely as a fallback when things go wrong but as a mutual agreement to deliver the project as agreed and apply the terms fairly as intended by the contract, without atempting to transfer risks or costs to the other party unduly. This approach ensures that both parties understand their responsibilities, risks and rewards. This includes the cost of deviations to the plan, who owns risks that arise and how unforeseen risks or rewards should be dealt with equitably.
Cecelia Fadipe, CFBL Consulting
For me, good contract management encompasses the following key elements:
Embedding these key elements will naturally help streamline the assurance and audit requirement. However, it is also recommended that a system of assurance is developed that incorporates self-assurance and independent assurance. With respect to auditing of defined cost, the principles above should provide a level of risk-based assurance. However, the involvement of independent specialists will still play a key role to satisfying a broader system of assurance that has been developed and is often required by more strategic stakeholders.
Imran Akhtar, Turner & Townsend
The starting point for good contract administration and management is having a solid understanding of your contract. Knowing the risk profile of your contract, whether it contains notice provisions, time bars and/ or condition precedents is absolutely key to being able to manage the payment process and any claims for additional time or money.
It is very difficult to balance driving a contract and project forward, whilst trying to adhere to the correct contractual provisions and procedures, particularly where relationships between the parties are breaking down.
It is also fundamentally important that you understand the roles and responsibilities of the parties and that you understand the work scope that is being carried out under the contract, including the timing and sequence of those works. Strong organisation skills are also a necessity and the ability to keep good and comprehensive records is a must.
However, one of the most crucial requirements is the personality of a supervisor or project manager. It is very difficult to balance driving a contract and project forward, whilst trying to adhere to the correct contractual provisions and procedures, particularly where relationships between the parties are breaking down. It takes real skill, effective communication and decisiveness to know when to insist on something or when to row back or propose an alternative solution, which may very well keep a project on track and the parties working collaboratively again.
Claire Randall-Smith Eversheds Sutherland
Good contract management principles involve setting a plan in place for you, as one of the parties of a contract, to comply with your obligations set out in the contract. Sometimes, the contract is very prescriptive and sets out who should do what and by when. Some contracts are not so specific in terms of what is required but there is a duty to do something. Either way, failure to comply with an obligation will result in a breach of contract and sometimes those breaches have negative consequences for both parties, which can result in delays and/or additional cost.
Having good contract management principles in place means setting out the quantity and quality of resources and expectations to comply and not breach the terms of the contract. Some teams will aim to deliver the project and use the contract if things go wrong. For me, ‘contracting’ involves setting up a contract which is intended by both parties to be used to regulate and deliver the project in a way that was agreed in order to be equitable to both parties. If things change or go wrong, both parties have a framework in which to work and understand the consequences when that happens. That is the principle of good contract management.
Gary Bone, Blake Newport
Contract management/administration can be improved in many client organisations bringing greater benefit and returns. When it comes to contract management, I often see clients have well-intentioned processes and controls. However, it is common for a lack of ownership to occur once contracts have been let. The downside being a dip in performance and therefore return on any investment. Good contract management is illustrated by clear ownership of the contract (business owner), consistent management of performance/ KPI measures, collaboration and mutually beneficial outcomes.
Good contract administration includes many of the above principles. In addition, and specifically in so far as the construction industry is concerned, a higher level of understanding is required. Ability in the basics of contract obligations, technical understanding, impartiality, valuation and dispute avoidance will be desirable.
Construction contracts are more complicated than the average services and good contracts. There will be well-trodden conventions and common law principles that sit behind the history of the standard forms. It is advisable that clients invest in their people to meet thresholds of capability and experience. For example, accreditation alongside institutions such as the NEC will provide a good baseline of competence.
Tom Leach, Southern Water
Good contract management requires clarity in the contract, understanding the obligations, responsibilities, roles and risk allocation within the contract and staff/ management having a strong foundation in contract management. These should also provide clarity of expectations and highlight any issues early which can then be addressed through early communication and negotiation.
Assurance which focuses on getting these behaviours correct would likely lead to a reduction in costs being identified as disallowed which benefits all stakeholders. It also allows for a wider assurance piece such as peer reviews, training and sharing best practice.
Kathleen Hannon, Scottish Water
Setting out clear guidelines on how the contract is going to be run from the start. Making it clear for both sides, what is expected and what the contractual requirements are for both parties (not making assumptions!). What I have seen work well is creating a regular contract ‘heartbeat’ that enables the project to gain a good rhythm and that will embed itself into the processes and diaries. This needs strong leadership from both client and contractor and regular communication to prevent key issues from floundering – costing both parties time and money.
Chris Leech, Balfour Beatty
When asked the question ‘what does good contract management principles mean to me?’, my first reaction is, ‘doing what the contract says’. However, the contract is a framework to operate under and it relies on people to adopt an open collaborative approach, with clear objectives, strategies and processes. Importantly, there should be a strong awareness of risks and the management of them.
The lack of honesty and a non-collaborative approach makes commercial management frustrating. It normally results in quantity surveyors (QSs) emailing clauses and arguments to one another and a stream of compensation claims.
The lack of honesty and a non-collaborative approach makes commercial management frustrating. It normally results in quantity surveyors (QSs) emailing clauses and arguments to one another and a stream of compensation claims. Starting a contract incorrectly is where things normally start to go wrong. When either party does not fully understand the scope, contractual requirements or obligations.
Good teamwork and ‘best for project’ discussions will generally always get better results. Processes and procedures are a must. These set a clear operating relationship between the parties. Robust cost management and assurance rely almost entirely on process discipline. The agreed structure also allows more effective auditing which is essential for continuous improvement.
The commercial procedures will cover the signature/authority matrix, the process for change management, the procurement process and the strategy for the commercial management of the project. On top of the project-based commercial strategy, most companies have a best practice guide or a gate system where requirements for commercial processes are prescribed. This governance provides a ‘how to’ for the commercial team to follow, guaranteeing best practices and how obligations are achieved.
On top of the project-based commercial strategy, most companies have a best practice guide or a gate system where requirements for commercial processes are prescribed.
Management of time effective and proactively is a personal focus. I have found using time management strategies and planning make me more efficient and able to manage my workload effectively. On a project level, a good programme with clear milestones focusses the whole team and drives them towards the same end goal. My current project has a very clear integrated vision of what success looks like and this is supported by regular briefings and visuals to ensure all parties are aligned.
Risk management is also critical to a good project. At tender stage it is important to identify what the risks are and who owns them. Regular monitoring of risk mitigation progress will ensure efficient management should they be realised. Forecasting risks, budgets, regular risk meetings and having a risk or contingency release plan are excellent methods to keep on top of uncertainty. Using the contract as an instruction manual is onerous and at times laborious but contracts such as NEC have been put together using years of experience to manage project works in a fair and open way.
Charlotte Edwards, Atkins - SNC Lavalin
The definition of contract management can be described as the end-to-end process applied to create, operate, control and conclude legal agreements used to deliver construction projects. In my experience and from a client perspective, the activities below conform with good contract management principles.
Establish a management hierarchy responsible for delivering the project in line with corporate governance and providing strategic oversight.
For the principles to be effective they should be underpinned by a coherent clear communication line between the contract parties. Communication is what drives best practices and keeps the parties working as a single unit with a joint purpose.
The above initiatives are not an exhaustive list but should provide a solid base for setting up what can be considered as good contract management principles. For the principles to be effective they should be underpinned by a coherent clear communication line between the contract parties. Communication is what drives best practices and keeps the parties working as a single unit with a joint purpose.
Elliot Patsanza, Ridge & Partners
Parties doing what they are contracted to do, in an organised, structured and controlled way. If contract management is done by the parties and contract administration by the project manager, is this differential understood widely enough? No. Clients step into the administration role and act with bias. PMs acting as agents often follow corporate agenda based on commercial return and clients acting as administrators can sometimes compromise their own outcomes by re-prioritising workflow without adequate planning and often insufficient thought towards effective compensation.
Martin Perks, National Highways
They mean embedding good practices in managing construction projects which involve following the notification and communication requirements in the contract to ensure that key players (client, contractor and supply chain) are all managing the projects at a minimum in line with the contract requirements. This is premised on the principle that the project is at the centre of the process and that time, cost and quality considerations are all managed and communicated as required under the contract with no surprises leading to the completion of the project in time and in line with the costs recognised under the contract. In simple terms, it is as a minimum complying with the contract requirements in all respects so that all stakeholders involved are always in the know and are in control of project cost, time, quality, health & safety status of the project at any given time.
Dr Anywhere Muriro, BAM Nuttall
Embedding good practices in contract management to reduce the assurance burden involves planning strategically early on for cost assurance. For example, on cost-based or target cost contracts, communicating the necessary assurance requirements early on at the pre-contract procurement phase, or NEC cost-based contracts including an audit clause that gives the client full audit rights and access to all cost systems and accounts.
In practice, this is not as simplistic so embedding an addendum that specifies the scope of what this entails, including examples of required financial, commercial and project controls. In addition, examples of acceptable supporting documentation for direct and indirect costs. The expected standard of contract reporting, including correct work breakdown, cost and account code classification from the start of the project.
Clearly defining the cost audit and assurance procedures early and supporting cost assurance training will ensure a consistent approach throughout the supply chain and company-wide. Regular training ensures all staff, stakeholders, including project managers and the supply chain understand their roles and responsibilities for compliance, minimising the risk of disallowed costs and disputes.
In practice, I have seen that implementing contract management software like CEMAR can automate tasks like document storage, deadline reminders and compliance tracking, reducing risks from human error and boosting efficiency. Such a centralised contract repository secures contract documents and cost records ensuring easy secured shared access and correct version management. In addition, the benefit of proactive integrated risk management from the pre-contract planning phase to post-contract through to project completion identifies risks early and establishes mitigation strategies for minimising their cost impact.
Agreeing on cost audit principles at the start can help prevent future disputes over disallowed or defined costs. These best practices, if applied consistently, along with company-wide training and independent pre-audit reviews are good contract management principles that will help lower costs, the assurance burden and requirements.
Cecelia Fadipe, CFBL Consulting
It starts with the contract drafting. What do one or both parties need, as a minimum, as an output to satisfy its requirements? What is a ‘nice to have’ but is ultimately a waste of time and effort? The parties should work this out at the tender stage before it becomes a contractual obligation and be exceptionally clear about what is required. Putting unnecessary obligations into a contract adds to the cost of delivering the project. Then, during the currency of the contract when it comes to cost auditing, the parties should know what is required, under the terms of the contract, and not ask for or be forced to provide information that is not required.
Where a negative and adversarial culture in assurance develops, individuals should be reminded of the rules of engagement set out in the deal struck by the parties. If more resource is required to provide what is explicitly set out, then that is what is required – people not having enough time is not the right answer and can lead to bad practices developing.
Gary Bone, Blake Newport
Cost assurance is part of large cost plus and target cost contracts. Having clearly defined processes understood by both parties (communication again!).
Risk areas that are not clearly defined in the contract need to be agreed upon early to enable the parties to understand where they sit on ‘grey’ areas to minimise conflict and ambiguity between both parties.
Setting out clearly how the project is going to be run at the start of the project is really important so that both parties understand how costs are agreed upon and authorised for the work.
Risk areas that are not clearly defined in the contract need to be agreed upon early to enable the parties to understand where they sit on grey areas to minimise conflict and ambiguity between both parties.
Chris Leech, Balfour Beatty
NEC contracts are written to hold clause 10 as a condition precedent; ‘act in accordance with the contract’; ‘act in a spirit of mutual trust and cooperation’. That means that each party must act with integrity. This is so often not considered when failing to perform the contract as written. Contract management must hold clause 10 at the heart of what it is; each party must be held to account and not coerced into cognitive dissonance.
Martin Perks, National Highways
To include all the required assurance regimes in the contract explicitly so that it is clear to all parties what their contractual obligations are and if any party does not adhere to the obligations, then it is a breach of contract providing the aggrieved party with remedies under the contract. Regular training and briefings to key parties involved can also help the project team to embed good practices in contract management. Long term it may be a good idea to engage with the academia of all built environment curricula so that this is included as a course module in their training.
Dr Anywhere Muriro, BAM Nuttall
The supervisor under NEC is responsible for coordinating the quality management of a project. This will include undertaking or accepting the results of any tests or inspections to check that works have been carried out in accordance with the scope of the contract. The supervisor therefore takes on a more ‘hands-on’ role in the contract works compared with the project manager and an active role in relation to managing the quality of the works.
The supervisor is also obliged to act impartially (which speaks to the underlying ethos of the NEC) and this factor, alongside its obligations in regard to defects and its ability to be implicit in compensation events under the contract, means the role is a burdensome one that requires diligence and proactivity throughout the operation of the contract.
A supervisor must also trust their judgement and not be afraid to give uncomfortable or difficult instructions to the parties for the good of the project.
The skills and attributes noted above are all important for the role of the supervisor under NEC, but particularly with NEC there is a requirement to be able to follow the very process-driven contractual mechanisms at the same time as managing all parties to work together collaboratively for a successful outcome. The NEC therefore requires a considerable amount of proactivity and pre-empting issues before they escalate.
The balancing act referred to above is therefore all the more important when dealing with NEC. A supervisor must also trust their judgement and not be afraid to give uncomfortable or difficult instructions to the parties for the good of the project – communication and great interpersonal skills are therefore fundamental to this role.
Claire Randall-Smith, Eversheds Sutherland
Although I have not got a working knowledge of the NEC4 form of contract I would have thought that the supervisor is responsible for checking the works carried out by the contractor to ensure that the works are in accordance with the works information. How does their responsibility of checking that works or defects are in accordance with the contract link into audit and assurance?
I would say that it links well because the client is only obliged to pay for works that have been undertaken in accordance with the contract requirements so if the supervisor believes that the work is not in accordance with the contract and is defective the client is not obliged to pay for it and the cost incurred by the contractor in undertaking such defective work is treated as disallowed cost.
Dr Anywhere Muriro, BAM Nuttall
No. This is vastly under-managed by clients and service providers in my experience. This is a significant professional indemnity risk to service providers and commercial risk to clients. If the supervisor does not perform and one of the other functions (PM or QS) steps in to provide data for assessments by the PM, the supplier has the potential for decisions to be inequitable and provided by persons without the requisite competence.
Martin Perks, National Highways
The Steering Group on Cost Assurance and Audits on Infrastructure Projects and Contracts:
Cecelia Fadipe (chair), CFBL Consulting; Imran Akhtar, Turner & Townsend; Claire Randall-Smith, Eversheds Sutherland; Ian Heaphy, INCC, NEC Board; Gary Bone, Blake Newport; Darren Ward, The Orange Partnership; Tom Leach, Southern Water; Kathleen Hannon, Scottish Water; Shy Jackson, Bryan Cave Leighton Paisner; Jennifer Varley, Bryan Cave Leighton Paisner; Charlotte Edwards, Atkins – SNC Lavalin; Jim McCluskey (CICES representative), Kier Group; David Worsley, Transport for the North; Elliot Patsanza, Ridge & Partners; David Sharp, Mott Macdonald; Michael Bamber, WSP; Justice Sechele, Currie & Brown; Chris Leach, Balfour Beatty; Victoria HillStanford, Network Rail; Lisa O’Toole, Network Rail; Martin Perks, National Highways; Chris Richardson, Colas; Charlotte Hughes, DLA Piper; Tony Cave, Croftstone Management; Dr Anywhere Muriro, BAM Nuttall.