This article is intended to be understood in the field of engineering and construction projects. Just to be clear and provide some context, this is from the contractor’s standpoint, in its relation to the owner or client.
Quite often, as soon as someone mentions "the contract”, most people in the contractor’s organization start calling the lawyers, whether from internal legal areas or external legal consultancy firms. Few think about showing the first contract drafts to a senior project manager or to any representative of the operations team.
“…the contract negotiation must be carried out by the decision makers, since they have the best knowledge of the project and of their own organization.”
Even fewer people are smart enough to take into consideration the contract draft, sometimes included as part of the bidding documents package, when preparing the contractor's proposal. At most, when the client includes such contract draft in its bidding package, the contractor's commercial team sends that contract draft to their legal area, asking for recommendations to include in the proposal's clarifications. Do not get me wrong: that is not bad, it is fine. But only being fine is not enough at all.
After the contractor is awarded and the contract executed by both parties, the final outcome is that the contractor's project team ends up tied to operational conditions largely unknown. If everything goes well and smoothly during the project execution -which almost never happens- the project is finalized, everybody is happy and no one ever reads the contract.
Unfortunately, that is almost never the case. Reality shows up: some conditions change, the owner needs some adjustments, the contractor falls behind schedule or costs increase usually both situations happen at the same time- and, yes, at that point the project team and the project manager fetch the contract, start reading it and discover that there is going to be very hard to realign the project without bearing some important costs and damaging the contractor's image and commercial relationship with the client.
Of course, any competent contractor will appoint a contract manager as part of the project team, but this is usually after the contract is signed.
Truth be told, in engineering and construction projects the contract is not an issue to be delegated to the lawyers and to the contract manager, after the latter is appointed. The contract is the prime responsibility of the project manager and the project team. A contractor, as an organization, is called contractor just because it performs work under a contract.
As I have mentioned in a previous paper1, those responsible for the contract are those who accept the contract and will perform the corresponding work. We can call them the "decision makers" of the agreement.
Therefore, the contractor's operations area must be involved in the contract draft review to give input to the commercial team that is preparing the proposal. An experienced project manager should include comments to the contract draft before it is sent to the legal area. In such way, the legal area has optimal context for its review, comments and recommendations.
Obviously, the contract negotiation must be carried out by the decision makers (main negotiator), since they have the best knowledge of the project and of their own organization.Contractor's legal area, or external legal consultant, acts here as advisor to the main negotiator and can establish corporate boundaries that the main negotiator cannot exceed.
The main negotiator should be an experienced project manager or operations representative, who knows what can happen on site during the project execution and has a fairly clear idea of the problems the project team would be dealing with.
Finally, the first thing an appointed project manager should do is to read the contract for which he or she will be the ultimate responsible.
In times of change, when agility and economy are needed at all levels, the use of specialized services provides that precise mix of capacity, effectiveness and efficiency that organizations need to succeed.
At DC&R we are able to meet these requirements with professional solvency and the experience of more than 25 years in complex engineering and construction environments for heavy industrial markets of high demand such as mining, gas & oil, or energy, as well as for infrastructure and commerce.
DC&R also offers technical assistance services to businesses that need to interact with engineering and construction companies, from tender and project management to contract administration.