Control of contracts

The contract control process commences right at the beginning stage of bid document preparation inviting contractors to bid, and proceeds through the contract negotiation, contractor selection, monitoring and controlling of the contractor?s work and terminating the contract..

For effective control of the contracts in a project, the following areas need attention:

• Core competence of the project manager: The project manager must have experience in planning and management of similar projects. While he should be ready to refer to the individual specialists, he should be as knowledgeable as anyone about the economic and regulatory environment, engineering technology, project planning, scheduling and cost accounting, as well as construction.

His focus throughout the project implementation should be on the key criteria of scope, time, and cost and client satisfaction. He achieves this by interpreting the requirements to the specialists and directing their efforts to achieve the best combination of these four key criteria. His core competences will be to resolve conflicts which invariably arise between these four criteria. His objectives on the project are identical to that of the client; however, he should be able and willing to argue a point with the client when he feels it is necessary.

• Requirements of the working system: For a competent project manager to be effective, the following components of the working system are necessary:
  • The project manager must have the necessary managerial authority to ensure response to his requirements from his team.
  • All major technical, cost, schedule, or performance decisions should be made only with the project manager's participation.
  • He must be identified as the authoritative and single formal contact in dealing with outside parties.
  • The project manager should have a say in the assembly of the project team, and personnel assigned to the project must be competent.
  • The project manager should have the authority to control the commitment of funds within the prescribed limits of the project, for which he liaises constantly with the owner?s representative.
  • Senior management must clearly demonstrate support for this concept.

• Use of Work Breakdown Structure (WBS): A complex project is made manageable by breaking it down to smaller group to define task that can be achieved independently of other tasks. A formalised WBS is essential for effective control of contracts. A contract to be awarded on the project is identified after deciding the work package units. Consultants and contractors should confirm their agreement to the work package units for which they are responsible. Thumb rules for finalising and controlling work package units are:

1. It should not  be necessary for the project management team to incorporate into the network schedule, information which is more detailed than the work package level. Progress should be monitored at this level and variances can be investigated through field reports.
2. Work  packages  should  be  identified  2  to  6  months  prior  to performing the work, and can only be revised with the approval of the project manager and normally as a consequence of a change order.
3. A project should not be broken down to such an extent, or contain work packages so small, that unnecessary administrative effort is incurred in maintaining the information flow. For example on projects up to, say, Rs.100 crores, a minimum work package value of, say,
4. 0.1% is a good rule of thumb.
5. For  schedule  control,  an  integrated network  should  be  drawn  to monitor and forecast progress. This schedule should not be changed unless:

• A formal reprogramming of the entire project or major part takes place.
• The target schedule and the current schedule become so far apart that recovery is impossible and target objectives become meaningless.
• Such    changes    are     recognised     and    approved    by    top management.
• Recognising the limitations with flexibility: While the D-B-B mode of contracting enables flexibility to make scope and design changes, it must be constantly ensured that the detailed designs with reference to a contract get substantially finalised prior to award of the contract.