Contract Administration
Contract Award
Contract is awarded to the finally chosen
contractor through the document “Letter of
Award ”or “Letter of Acceptance”(LA)
LA includes details regarding contract price,
period, name of project Engineer, and date of site
possession (date on which contractor legally
“possess” and be responsible for site)
Date of site possession coincides with beginning
of project period.
Mobilization
• Mobilization of works on site starts upon receipt of a Letter
of Acceptance (LA) from client
• Contractor sets up site office, bring in labour and
machineries.
• Date of site possession is stated in the LA
• Insurances and performance bond must be taken, and levy
is paid before mobilization
• Mobilization is priced in the “preliminaries” items in the BoQ
• Typical scope: temporary access road to site, water and
electricity supply, site office, storage and transportation of
machinery, equipment and materials to site.
Preliminaries items
Site Office
Insurances
There are 3 compulsory insurances:
• Insurances of Works
• Public Liability Insurance
• Workmen Compensation Insurance
Performance Bond e.g. 5% of Contract
sum
Preliminaries items
Statutory Obligations
Government contribution
Project signage
Temporary Water and Electricity supply
Contractor’s supervision and management
Vehicle for PM and equipment
Progress Payment
In accordance with Conditions of Contract,
progress or interim payment is made at least
once a month
Amount of 75% of materials on site may be
added to the claim.
Evaluation for progress payment is usually
based on monthly claim submitted by
contractor e.g. shortly before site meeting.
Progress Payment
PM will inspect the site together with the
contractor and evaluate the claim
Within 14 days, PM must issue an Interim
Certificate stating amount to be paid and
details of any payment made.
Within 30 days, client should issue cheque.
Variation / Contract Modification
Very often in construction, the final contract sum
is different from the original.
This is due to Variation Order (V.O.) works which
is normal in construction projects e.g. additional
scope of work based on client’s request, design
discrepancies or overlook, re-measurement of
quantities (BQ contract), EOT, Price Fluctuation-if
contract provides etc.
VO must be based on an PM’s instruction
VO can be addition or deduction, but usually
meant addition
Retainage
Many construction contracts, especially
those that involve competitive bidding,
provide that a certain percentage of the
progress payments will be retained by the
owner.
In the usual instance, the accumulated
retainage remains in the possession of the
owner until the project is completed and
the final payment is made, with the owner
paying the contractor no interest on these
funds.
Retainage
A Retainage of 10% for the entire project is
typical.
Owners look on retainage as further protection
against possible eventualities such as
contractor failure to remedy defective work,
other claims against the project, collection of
damages from the contractor for late
completion, payment of damages to others
caused by contractor’s performance, and similar
claims that the owner may be called upon to
settle.
Retainage cont’d
Retainage induces the contractor to:
Maintain orderly progress of the work
Produce quality construction
Keep the work on schedule
Despite these considerations, however, retainage does
have some undesirable aspects for owners, general
contractors, and subcontractors alike.
This retainage produce a real cash flow problem to the general
contractors, increase interests on his loans and enforce him to
increase the construction cost for the owners.
Retainage cont’d
To mitigate the undesirable effect of retainage, a number of
changes and innovations have been introduced in recent
years:
Retainage will be held only in the first half of the project
period and if the contractor’s performance satisfies the
owner, the next half payments will be in full.
Only 5% of retainage can be applied on the project
payments.
Work satisfaction may encourage the owner to stop
retainage from payments.
No retainage for projects that is on or ahead of
schedule.
Delays of Work Progress
If the works are delayed and progress is
behind schedule as such the Engineer
feels there is possibility that contractor
may not complete work in time, then the
Engineer may
issue reminder
warning letters
discuss and try to help solve the problem
ask contractor to revise schedule
Delays of Work Progress
If the works are delayed and progress is behind
schedule as such the Engineer feels that the
project will not be completed by the date of
completion stipulated in the contract, then:
If the contractor has valid reasons that the delay
is beyond his control or is due to the client’s fault,
then, the contractor may apply Extension of Time
(EOT)
If the fault is on the contractor’s side, then
Engineer may impose Liquidated Ascertain
Damages (LAD)
Extension of Time (EOT)
Acceptable reasons:
Force majeure
Abnormal (inclement) weather
Delay caused by client e.g. in providing drawings or specifications or
providing the site (not ready)
Engineer instructions leading to variations
Labour on strike (nationwide level, not one confined to company)
Delays in appointing nominated contractors or suppliers or delays in
their work which may have affected the main works
Reasons beyond his/her control e.g. Nation wide shortage of primary
materials or shortage of labour
Sharp rise in construction material price e.g. cement, steel, fuel(?)
EOT is normally given in weeks
Must apply 3 months before contract expires
Liquidated and Ascertain Damages (LAD)
A penalty imposed on the contractor for
the financial damages suffered by client
as a result of the contractor completing
the project beyond the completion date
as agreed in the contract.
LAD is imposed on daily basis
Enough warning must be given
Contractor’s Default Action/Non-Completion, and
Termination
In extreme case, if the Engineer finds that
the progress of the works is very slow, or
there is a very long delay all of which is
due to the contractor’s fault, and the
Engineer feels that the project will not be
completed at all, then the Engineer can
initiate a termination process
Contractor’s Default Action/Non-Completion, and
Termination
Termination clause in conditions of contract
allows the owner to take over possession of
site as well as work/materials/equipment on
site to complete project at contractor’s
expense.
However, the Engineer must have given
contractor enough warning before proceeding
with the action e.g. three reminder letters
and a documented final letter of Engineer’s
intention to terminate contract.
Completion of Contract Works
Contractor may complete the works within the
date originally stated in the contract or within the
extended time.
“Complete” here refers to “Practical Completion”-
a stage where the project constructed has
achieved its intended function, or can be occupied
or used despite some outstanding works to be
completed, or despite some repair works which, if
carried out, will not cause inconvenience to the
users or occupiers.
Completion of Contract Works cont’d
From joint inspection, if both PM and client
agree that the project has reached practical
completion, a “Certificate of Practical
Completion”(CPC) is issued to the contractor,
together with a list of outstanding work and
defects observed in the project.
The effective date on the certificate marks
the beginning of the “Defects Liability Period”
(DLP)
Handing Over and Demobilization
Upon completion of the whole or part of the
project, a handing over document is prepared
and signed by the client.
This starts the handing over of responsibility to
the client for the whole or part of the site.
Contractor can then start demobilizing from site
but his/her responsibility does not end here
Obligations under Defects Liability Period (DLP)
At the end of DLP;
• CMGD (end of obligation under contract) is issued to contractor
• Performance Bond is released
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