(11) Project Contract Flashcards by Natallie Kh

Importance of Relationships (inv..7)

Investment in relationship prior to the contract is important.
- Research about the company.
- Visiting contractor’s site.
- Socialising with focus.

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Importance of Relationships (ong..7)

Ongoing relationship between the parties.

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Importance of Relationships (proc..7)

Processes within the contract to nurture the relationship.
- Sitting on joint steering committees and other joint management
processes .
- E.g. sharing office space, regular meeting.

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Importance of Relationships (con..7)

Contract in the legal jurisdiction of the client.

- Contractor should comply with the legal jurisdiction of the client if possible.

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Importance of Relationships (acc..7)

Access to mutually agreed moderation or arbitration to avoid going to court.

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Importance of Relationships (cou..7)

Court action is a last resort action (expensive and slow).

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Importance of Relationships (ter..7)

Terms of contract.

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Tension between contractors and clients.

Contractors
- Maximum fair profit
- Minimum fair scope and quality
Clients
- Maximum scope and quality
- Minimum project cost

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Agreeing agendas between contractors and clients (con..)

Contractor

Good referee
Recurring business
Be more cost effective

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Agreeing agendas between contractors and clients (cli..)

Client

Less induction overhead for a known contractor
Don’t waste time to search for contractors
Confidence and Trust in the contractor
Cost savings

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What is a contract?

A voluntary, deliberate, and legally binding agreement between two or more competent parties.

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Contracts are usually…

Written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy.

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5 Conditions for Legal Contracts (1)

There must be an offer.

- Offer and acceptance are required.

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5 Conditions for Legal Contracts (2)

There must be consideration.

- An exchange is required (usually goods for money).

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5 Conditions for Legal Contracts (3)

There must be legal capacity.

- Those entering the contract must be legally able to do so.

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5 Conditions for Legal Contracts (4)

There must be legal purpose.

- The contract must be for something legal.

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5 Conditions for Legal Contracts (5)

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There must be intention.

- Both sides should know it’s legally binding.

Typical Examples of Contract Breaches.

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Failure to provide services on time or in full.
- Defective work or goods.
- Non-payment.
- Breaches of warranties.

How to Prove a Breach of Contract?

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Every legal argument
takes off from establishing a few things.
- You must verify:
- The contract existed.
- The contract was broken.
- You incurred losses.
- The person or business you’re challenging was responsible for these losses.

Contract Types.

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Fixed Price Contracts (lump sum contracts)

2. Cost Reimbursable Contracts.

Fixed Price Contracts

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Firm fixed price (FFP).
Fixed price incentive fee (FPIF).
Fixed price economic price adjustment (FPEPA).
Contractor bears risk.

Why does contractor bear risk?

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Since the price is fixed, cost overruns may not be passed on to the client.

Firm fixed price (FFP).

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One price is agreed upon for all the work.
- Preferred by both clients and contractors when there is high level of certainty.
  - Contractor has incentives to reduce costs → client should have an effective monitoring and quality control system
  - Used in training programmes, producing parts to
    specification, etc.

Fixed price incentive fee (FPIF).

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The price is fixed with an incentive for meeting a target specified in the contract.

Fixed price economic price adjustment (FPEPA).

- Popular where fluctuations in the exchange or interest rate may impact the project.

2. Cost Reimbursable Contracts.

- Cost plus fixed fee (CPFF). - Cost plus incentive fee (CPIF). - Time and materials (T&M) contracts.

Cost plus fixed fee (CPFF).

- Cost plus fixed fee (CPFF). - The contractor passes the cost back to the client and receives an additional fee. - Used for development and test projects. - Level of effort is justified because of high technical and cost uncertainty.

Client bears risk for CPFF.

- Since all the costs must be reimbursed to the contractor, the client bears the risk of cost overruns. - Client must exercise substantial external control over the contractor’s work. - Supplier's cost accounting system must be open to the customer.

Cost plus incentive fee (CPIF).

- The contractor passes the cost back to the client and gets an incentive for meeting a target specified in the contract. - Client and contractor bears risk. - The client bears most of the risk here, but the incentive fee motivates the contractor to keep the costs down.

Time and materials (T&M) contracts.

- Mostly used for small amounts of money and when the scope has not been clearly defined. - Client bears the risk? - The client pays the contractor for all the time and materials the contractor applies to the project.

Point of Total Assumption (definition)

(PTA) is the point in the contract where a contractor assumes responsibility for all additional costs.

Formula of PTA

PTA = target cost + (ceiling price - target price) / % of sharing cost overrun

Project Partnering

Many projects will be undertaken with contractors.

Partnering is about..

Turning contractual relationships into collaborative teams.

Partnering requires...

Heavy up-front investments in terms of time and construction of a good working framework.

What is vital and important about Project Partnering?

- Top management support. | - The selection of people and long-term commitment to the project.

Difficulties of Clients and Contractors in Relationship (clients)

Clients. - Oppressively monitor contractor’s performance. - Challenging each and every request.

Difficulties of Clients and Contractors in Relationship (contractors)

Contractors. - Exploit loopholes in the contract. - Manipulating information. - Taking advantage of owner ignorance.

Partnering rejects...

- The adversarial zero-sum legal contract model which often results in legal action to resolve problems.

How to conduct business with other organisation?

- Respect. - Trust. - Collaboration.

Partnership Advantages.

- Improved efficiency. - Cost effectiveness. - Increased opportunity for innovation. - Continuous improvement. - Fluid communication.

Why Partnerships Fail?

- Senior management give inadequate support or withdraws, for instance: - Fail to resolve an escalated decision. - Do not support lower manager decisions. - Differences in organisational culture. - Lack of partnering evaluation procedures. - Failure to exploit continuous improvement. - 50:50 split of *risk and reward* can help.

(11) Project Contract Flashcards

(42 cards)