Contract Administration Flashcards
Role of Contract Administrator
Contract administrators acting as decision makers, must act independently, impartially, honestly and fairly
A contract administrator manages/ administer construction contracts, whereby they may act as project managers, engineers, consultants and client representatives. This can include ensuring the contractual procedure provided for is followed and managing the day-to-day running of the contract.
Contract Administrator responsibilities
Under JCT the contract administrator is a defined role with specific responsibilities set out in the contract.
Under the NEC3 form of contract, the contract administrator is the project manager and the role extends to proactively managing the project.
However I will often carry out the contract administration roles on behalf of the contract manager such as;
- Carrying out valuations e.g. interim payment valuations, final account valuation, compensation events valuation
- Providing instructions/ communications to the contractor
- Determining applications for an extension of time.
- Managing adjustments to the contract price.
- Keeping records. This could include keeping records of site visits, correspondence etc.
- Certifying works
Difference in payment process between option A and E.
In Option A and E the payment mechanism is the same in terms of when the contractor must submit their assessment, when the Employer must issue the payment certificate etc. the key difference is how the price of work done to date is assessed.
On an Option A the Price of Work Done to Date is an assessment of any completed activities (including agreed CE’s) as per the activity schedule. The payment due is then the PWDD less previous payments.
On an Option E the PWDD is the Defined Cost to Date plus Fee. Evidence of timesheets, expenses, payments etc. are all required to evidence this. The payment is then the PWDD less previous payments.
NEC Completion contractual mechanisms
Sectional completion- handing back/ employer taking over certain section of the works (in this case certain station locations) whilst delays at other locations were ongoing preventing practical completion.
Practical completion- completion of the whole works. Under NEC practical completion is not a defined term, instead the term is just completion and is when the Contractor has
- done all the work which the Works Information states he is to do by the Completion Date and
- corrected notified Defects which would have prevented the Employer from using the works and Others from doing their work.
Difference in CE process between option A and E
CE process is again the same for each in regard to what constitutes a CE and the process of notifying a CE and assessing a CE (impact on Defined Cost)
What is retention
Retention is an amount of money withheld from a contractor until a job is complete. This normally is 5-10% of the contract’s sum. It acts as a kind of security deposit: if defects are left by the contractor that they fail to remedy, the money is rightfully retained by the employer to fix those defects.
When is retention released
- Half of the retention is released to the contractor after assessment is made at Completion of the whole of the works or in the next assessment after Employer has taken over the whole of the works if this is before Completion of the whole of the works.
- Other half released when the Defects Certificate issued
Challenges/ considerations when assessing subcontractor payments on an NEC E main contract with option A/ B subbies
Whilst assessing the NEC option A/ B payments, the process is to ensure any measured work (activity schedule/ BoQ) are complete and if so certify. I then check the CE’s and the valuation of these, mostly there is no disparity as what constitutes a CE under option A/B mostly constitutes a CE under an option E.
However the main consideration for these assessments is as the actual assessment we are making is the Contractor’s entitlement of Defined Cost, there are some items which may be disallowable under their NEC E contract. This is usually if they have not complied with a constraint in the WI that has then impacted on the subcontractor (in this case subbie owed CE but MS to cover cost and not to be paid by Employer), likewise Contra Charges agreed as not to be certified by Employer so on the individual accounts these items will not be certified (no overall cost impact on contractor as CE not paid in accounts +ve, nor the set off -ve so nets out at £0). This decision was made so the Contractor remains administration responsibility of this.
What is Defined Cost under NEC
Defined Cost for Option A & B is as per the Shorter Schedule of Cost Components and only used to assess compensation events.
Defined Cost for Option C-E is as per the Schedule of Cost Components and used to assess compensation events and determine the Price for Work Done to Date
For Options C,D,E Defined Cost is any payment owed to the subcontractor, the cost of components for other works as stated in the SCC (people, plant, equipment, charges, insurances, etc.) less Disallowed Cost.
What is disallowed cost
- costs not justified by the Contractor’s accounts and records;
- should not have been paid to a Subcontractor or supplier;
- was incurred because the Contractor did not follow an acceptance or procurement procedure or give an early warning,
- the cost of correcting Defects after Completion;
- resources, Plant and Materials not used to Provide the Works.
What are contra charges
A contra charge/ set off is where a party has a claim against them and they set off the cost/ charge the cost to another party if they have caused the claim to arise.
E.g. subcontractor claims to the contractor the cost of a lost shift due to frustrated access to an area, the contractor sets off this claim against another subcontractor who did not complete their works to programme and caused the frustrated access.
What is a goods receipt
A goods receipt is an indication that the items you have ordered have been satisfactorily received and the invoice can be paid. It involves going into our payment system going onto the appropriate PO and ticking that it has been received.
How to assess entitlement to extension of time under NEC
Should be to assess the impact of the compensation event against the accepted programme, if determined that it is a CE under the contract.
If multiple CE’s then entitlement to EoT would be based on the CE which has the impact on the completion date.
However the accepted programme may not always be up to date and if not entitlement to EoT should be based on the, ‘programme for remaining work’ and not necessarily the accepted programme
What is a performance bond?
- A means of insuring a client against the risk of a contractor failing to fulfil contractual obligations to the client.
- Whether or not a performance bond is required will depend, on the perceived financial strength of the party bidding to win a contract.
- Bonds are typically set at 10% of the contract value.
- Bonds can be issued either by an insurance company or by a bank, and the cost of the bond is usually borne by the contractor (although included into their tender price)
Parent Company Guarantee
- A PCG is a form of security that may be required by clients to protect them in the event of default on a contract by a contractor that is controlled by a parent company.
- PCGs are useful where a small contractor is part of a large, financially stable group of companies.
- In the event that the contractor defaults on their obligations, the parent company is required to remedy the breach, meeting all the contractor’s obligations under the contract (and/or covering loss and expense incurred by the client).
