Contract Administration Course - Part 1 - Contracts
This article is the first part of the contract administration course, which discuss the basics of construction contract administration.
Contract administration is a vital component of construction project management. It is very important that all contractual requirements for a construction project are met, during all phases of the contract.
A contract administrator's role typically includes a wide range of roles such as:
- Tender management
- Drafting of contract documents
- Issuing instructions, variation orders, claims etc.
- Review and determining claims
- Oversee procedures
- Issue different certificates such as payment certificates, taking over certificates, performance certificates etc.
It is obvious that there are a lot of skills and knowledge required to be a successful contract administrator. In this guide I intend to fill in the obvious lack of free online tutorials and guides for beginners in the contract administration field.
This course is intended to absolute beginners in contract administration and is intended to cover all the important knowledge and skills required to be a construction contract administrator, in particular under FIDIC Redbook 99 contracts and under Egyptian civil law jurisdictions.
What is a contract?
An agreement is an arrangement or understanding reached to by two or more parties. A contract is much more than an agreement between two parties, it is a specific type of agreement that is legally binding and enforceable in a court of law.
There must be an offer and acceptance, intention to create a legally binding agreement, a price paid -called consideration- (not necessarily money), a legal capacity to enter a contract of your own free will, and proper understanding and consent of what is involved. Any duress, false statements, undue influence or unconscionable dealings could make a contract illegal and void.
Elements of a Contract
A contract is made up of three primary elements
- Offer and Acceptance. Agreements reached through a process of offer and acceptance. An offer is a promise to act or refrain from acting, which is made in exchange for a return promise to do the same. Acceptance of an offer is the expression of assent to its terms. Acceptance must generally be made in the manner specified by the offer.
- Consideration. Each party to a contract must provide something of value that induces the other to enter the agreement. The law calls this exchange of values ?consideration.?
- Legal Purpose. A contract is legal and enforceable only if it complies with the law of the land and public policy. Any agreement entered into for an illegal purpose is not legally binding.
According to Wikipedia's page, a construction contract is a legally binding agreement between two parties based on policies and conditions recorded in document form.
The two parties involved are one or more owners, and one or more contractors. The owner has full authority to decide what type of contract should be used for a specific development to be constructed and to set forth the legally-binding terms and conditions in a contractual agreement.
A construction contract is an important piece of document that outlines the scope of work, risks, duties, and legal rights of both the contractor and the owner.
Types of Construction Contracts
There are many types of construction contracts, but some certain types are preferred to others in most projects.These major construction contracts are usually classified by method of payments, these contracts include:
- Lump Sum. In a lump sum (or fixed price) contract, the contractor performs a scope of work for a fixed amount of money. This amount of money is paid on fulfillment of milestones or at agreed intervals.
- Re-measured (Unit Price). In a remeasured contract, the owner produces (or cause to be produced) a Bills of Quantities with estimated quantities. The contractor enters unit prices against such quantity estimates. The final contract price is based on the actual quantities performed by the contractor.
- Schedule of Rates. A less common type of contract, where the contractor prices a list a schedule of work items with no (or with inaccurate quantities).
- Cost Plus. The contractor will be reimbursed for all actual costs plus an agreed amount or percentage for the contractor's overhead and profit.
Parties of Construction Contracts
Most standard construction contracts contain three parties, the Employer, the Contractor and the Engineer (according to the terminology used in the FIDIC Redbook).
Note that terms that are defined in the contract are written in upper-case letters in order to highlight their significance. For all terms used in FIDIC Redbook, read this article.
- The Employer. The Employer is the first party that decided to carry put a certain Works, and accepted an offer by the second party, the Contractor, to execute the Works.
- The Contractor. The second party, who is obliged to complete the Works for which he has submitted a Tender, within the time specified in the Contract (called Time for Completion).
- The Engineer. Not a party to the Contract between the Employer and the Contractor, but is a party hired by the Employer to administer the Contract. The duties of the Engineer includes issuing of instructions, issuing payment certificates, determinations, ensuring that the Works are carried in accordance with the Contract. The contract between the Employer and the Engineer are set forth in an agreement, based on the FIDIC White Book. In the FIDIC White Book, the Employer is referred to as the Client and the Engineer is referred to as the Consultant.
This marks the end of the first part of the course, and in the next article we shall discuss contract documents and the tender/procurement cycle for construction contracts.
Please share your ideas, suggestion and questions in the comments section below.
In this part, we learned:
- what is a contract;
- difference between a contract and an agreement;
- elements of a contract;
- construction contracts;
- types of construction contracts; and
- parties of construction contracts.
Continue Reading: PART TWO - TENDERING
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