One of the main functions of the in-house law departments of Engineering companies is to create contracts that shape the business goals of their organisations. Resources are hired and trained to understand specific contracting policies of an engineering company and in-house lawyers seek to draw out a balance between risk mitigation and aggressive business growth. This is mainly achieved through contracting policies that legal departments of engineering companies put in and which are followed by the rest of the organisation. Generally, the involvement of the legal department or external counsel ensures that contracts do conform to acceptable standards.
When it comes to managing an executed contract, it generally falls on the contract management or the business teams to manage the ongoing contractual responsibilities. Primarily, excel sheets are prepared for key dates and obligations of the contract and through emails the parties continue to coordinate both internally and externally. Sometimes such coordination may go wrong resulting in delay, escalation disagreements and even, disputes. The disputes in construction contracts can take many forms but most of them can either be classified as claims by contractor for additional amounts for cost or time overrun or claims by owners for lapses in fulfilling contractual obligations by contractors.
All in all it can be said that formation and execution of construction contracts is somewhat of an adversarial process. However, on the other hand, there is wide acknowledgement amongst the industry players and consultants today that a collaborative process during pre-execution or performance stage contracts for large projects will enhance outcome for both owners and contractors.
McKinsey & Co identifies a single contract amongst all delivery partners viz., engineer and architect, main OEMs and the contractors as one of the pillars of collaborative contracting. However, due to regulatory and tax reasons, contracts are generally split amongst multiple partners. Thus, it's important to ensure that language of multiple contracts are consistent at least so far as risk allocation, risk mitigation, no fault termination and resolution mechanism are concerned. This can be achieved by adopting a set of templates for the whole project which can replace more frequent practice of having different templates across contracting chain.
The review of constructions agreements needs to follow a uniform policy in order to make sure that across multiple contracts for a construction project, no party is able to shift risk in a disproportionate manner to any other party. In order to achieve this outcome, it is important that different teams of the owner and the main contractors agree on a playbook for risk allocation in the beginning of the project. The same playbook then needs to be implemented by each contracting team working on the project. Beyond the playbook, the stakeholders of a contract must be able to signify the good, bad and ugly of a contract simultaneously, like one is able to do so verbally. Think of Slack chat where the starting point is a contract. This is something that a modern contract lifecycle management solution is able to achieve digitally.
This one is most critical item for the objectives of a construction contract to succeed. There are two parts to this collaboration. First is simplification of contractual obligations. The language of a construction contract is typically formal and expressed with legalese. However, in real business terms, the formal language and legalese are implemented through practical executable steps. For example, a construction contract may require that bank guarantees be provided against performance or advance payment. At the owner’s end, this may need to be broken down into various activities and tasks may have to be assigned to different staff members of the owner. How does one track the various components of the task and the timeline? Think of a task management tool but centred around a contract – without that, it is understandable that contractual tasks may face delay or partial completion.
It is the nature of construction contracts that they generate several documents like NTP, Change Order, Handover Notices, Confirmations, Bank Guarantees and various others. The construction contract in a project may itself go through several amendments or addenda may get added to the contracts. Many invoices are issued from time to time. It's important to store all these documents in a central place such that both during the preparation of these documents and thereafter, stakeholders continue to have uninterrupted and complete access to these documents. It's also important that stakeholders are able to simultaneously read, comment and contribute towards finalisation of these documents resulting in quicker documentation, increased accuracy and better tracking.
Construction is an old fashioned industry – still winds of change has touched construction projects and many contractors are moving digital while tracking construction activities. So, benefits of reminders and notifications around project schedule may be available to them today. However, beyond the hardcore construction work, it's also important that reminders and notifications are organised for contractual provisions. At the end of the day, compliance with contractual provisions both in terms of delivery of documents or other warranties will ensure that contractors are able to hold themselves in good stead during the performance of contracts and thereafter.
Riverus Umbrella has advanced AI driven features which boosts the productivity of an in-house contract management team significantly. The system can be rolled out for a single project or across a company. Please contact us for a demonstration at hello@riverus.in or just pick a demo slot.
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