Running Head: Contract Construction Cost Estimating Abstract The contract is much more than just words on paper, it is a document that protects, oversees and delineates the responsibilities of the parties on both sides of the table. It is what makes the bid valid. It cannot be stressed enough that the contract needs to be clear-cut and precise. Therefore, there are usually only a few people involved in the negotiation process and oversee the contract in general.
The rules of integrity, ethics, and overall conduct are principally important. Contrary to popular belief, the bidding process is easy. It is when the minute details are actually translated into a legal manuscript, is when both sides of the agreement are in the most need to be accurate in their intentions. There are duties, responsibilities, risks, and expectations as a contract representative in a company or even in your own home that are a part to ensuring a contractual relationship is a successful one. Summary
A contract is not just a few sheets of paper of legalese and a “to do list” for a project. It is a document that creates a relationship between entities for goods and services. It is project management at its finest – if done correctly. The bidding process may be done, but the hard part is getting into the minute details that are mutual promises (considerations) defining the rights and responsibilities of each party. The sociology of a project rests in the hands of both parties. The people make the project work. Roles and Responsibilities As anyone involved in the industry knows, the project manager is responsible for the performance of the project with respect to the goals of cost and schedule” (Heisler). A project manager in this instance is the contracting officer representative or the homeowner, hereafter to be referred to as a COR, must have some level of expertise in the area of the bid to ensure that all requirements, regulations, orders, and applicable procedures are followed. This effectively safeguards the interest of the contractual relationship with complete compliance of the terms and conditions.
CORs should take the lead in encouraging the business process, not to be consistently looking over the shoulder of the contractor, but to ensure that any decisions that are made are sound. While not all homeowners take a class in contracting, they have the same responsibility of a COR in any large business area to: * Monitor performance, * Evaluate work as it progresses, * Exercise appropriate direction within the scope of the contract, and (most importantly) * Inspect and accept the work upon its completion.
From an administrative view, the COR should keep in contact with supervisors, (or in the case of the homeowner a spouse), to keep them abreast of the project – changes, updates, dismissal of the contractor – maintain a file of all decisions/financial obligations, and be an overall wealth of knowledge for the contractor to come to with questions or concerns. In labor related issues, the COR’s main responsibility is to monitor the schedule and ensure the contractor adheres to it. In so many projects, the schedule is not followed and money is spent to either continue or stop-work on the contract.
While in private contracts, there is little need for the homeowner to see that proper posters for job safety and protection are visible, in the business world, Occupational Safety and Health Association (OSHA), Equal Employment Opportunity (EEO), Service Contract Act, and various other informational posters are to be posted in highly trafficked areas. The employees are to have easy access to this information. Additionally, there is a need to ensure that the contractor enforces all health and safety requirements.
Regarding the inspection process, this is not necessarily about inspection and permits; this is in direct accordance of whether or not the contract is being followed. Specifically: * Ensure that all work is in accordance with the contract; * Review and monitor progress reports and work plans; * Compliance with quality control system; * All (if any) defects or omissions are corrected. Also falling under the realm of responsibilities, as mentioned previously, change orders. Inevitably, there are changes within a contract. It does not matter what the bid says, or ultimately with the contract says, changes will occur.
Whether it is a new development, such as having to replace an entire wall instead of a portion of the sheetrock, or an adjustment in the estimate, there has to be a review of the need for change prior to the actual act. A full evaluation needs to be done to ensure that any equitable adjustments are reviewed for technical prowess prior to initiation. Submission of not only changes, but a schedule list of due dates to determine the submittals are vital. These are to be submitted for review and approval or rejection of these modifications.
But these submissions have to follow a specific set of language. Not just the submissions, but all areas of the contract. Language A contract’s language covers more than “for this service, this is the fee, please sign here”. On the contrary, it is a document that spells out in great detail how and what is expected from both parties. Therefore, the accuracy and completeness of it will make or break a successful partnership. “A contract should solve more problems than it creates and you never want to have any contract so vague and uncertain that it leads to litigation…
A contract should be clear and thorough, spending the extra few words to make it so complete that, as much as possible, no one can interpret it in any other way than the way the draftsperson intended” (Hoffman). The precision of the words and their meanings cannot have a structure that is open to interpretation. While during the bid process, most of these details are ironed out and discussed, it is the contract that is the complete and binding agreement. This is not necessarily a step by step process, it may cover the schedule of the project, but it is more of a “if, then” concept.
For example, ‘If the contractor is in violation of agreed upon procedure, then the contract shall be terminated. ’ The contract is not about keeping boundaries for the contractor, it is also about the contractual obligation of the COR. There are many horror stories about the contractors breaking a contract, but the CORs are just as probable of doing so as well. It is for the protection of both parties that the contract is read thoroughly and agreed upon to the last section. This is where the structure of the language is vital and thus upon signing creates and delegates responsibilities.
But, and here is something that is quite often forgotten, the contract is a living document. While it cannot be altered without the agreement of both parties, it can be modified and altered to fit any new specifications. “The contracting parties should maintain good lines of communication to share the same objectives to guarantee that all parties involved benefit from the contract” (Bubshait). Maintaining a strong liaison and direct communication (and this must be a two way street), preferably via email and constant meetings, will alleviate headaches and misunderstandings that could occur – which leads to ethics.
Ethics Odd segue, but a strong communication highway encourages ethical behavior between the parties. There is always concern as to how much money is spent and how. However, in the event that unethical conduct is exposed on either side of the table, trust is lost. “It is in economic communities, and in the often unspoken understandings that constitute their ethical glue, that we believe many of the answers to business ethics quandaries lie” (Donaldson & Dunfee). Waste, fraud, and abuse are huge buzz words. These simple statements invoke a high level of fear, especially in the concept of moral free space. We do not assume that…the contractors are ignorant of their economic and political preferences” (Donaldson & Dunfee), however, it should be presumed that their ethical ground is solid. Ethics is something that is thought about, but almost never executed well. There is a lapse in ethics in business, creating a flimsy film of the illusion of propriety, but does business ethical behavior really exist? Yes it does, but it is not just one sided. Each side is obligated to satisfy their obligations to the contract in good faith. Not just the financial obligations, but those of goods and services.
Both should endeavor to avoid actions that can create the appearance of a violation of ethics or the law. And while free can be good, but only during Bonus Days at the mall, to receive goods and services for free opens a doorway for impropriety. It gives the illusion that either side can be bought. Whereas accepting a gift of a new gazebo, in addition to the new deck being built by your Uncle Mike, is perfectly all right; it is not conventional when a company is performing the work. Violation of ethics creates the worst possible situations of conflict of interest. Specifically, with any large business, situations here an employee has financial gain, the mere notion of impropriety opens up for a host of problems. Such as with nepotism, i. e. suggesting Uncle Mike for the job and prepping his bid to ensure that he is the winner, it is often regarded as bad business behavior. It is imperative that the mere appearance of indiscretion be avoided. All involved with the contract negotiations and execution should behave as if full public disclosure is expected at any time. It makes more sense for to voluntarily remove employees from the proceedings rather than take a professional ‘hit’ for playing favorites.
To engage in a financial gain transaction gives any potential business partners pause to pursue a business relationship. This also goes towards endorsement of specific products, services, and enterprises for financial gain. While, as the COR, you are allowed to specify products to be used in the project, to sanction the use of a product for financial gain is frowned upon. Business ethics are not situational or conditional concepts; they are the backbone of the entire project. The question still remains, why should the COR and the contractor question the motives of the other?
It shows that neither party is without moral/ethical boundaries and in questioning our own ethical quandary, the answers can solve issues within the contract administration. Contract Administration Responsibilities are not just relegated to ethics and contract language. Contract administration is a plan of action to encompass the strategies and monitoring techniques starts with a clear, concise performance-based statement of work to the greatest extent possible. Within contract administration, goals and risks assessment are areas that need special attention to detail.
Contract administration is where the true process remains. Contract administration can be simple or complex plan of action, however, but it must be specific in order to avoid any misunderstanding. “The present economic situation has forced owners to establish time and cost reduction programs to control expenditure” (Bubshait). Therefore, documentation should be sufficient enough to: * Provide a basis for informed decisions during each step of the project; * Provide a full comprehensive history; * Furnish essential facts in the event of litigation.
This is the baseline as to how the contract shall be tracked through the end of the contract completion. It should be simple and easy to use, but complete enough for efficient administration. Identifying the work that the contractor is legally required to perform and what approaches/methods will be used are only a fraction of the contract administration. Risk Business risk is not all that different from everyday risk, measures are taken to assume the least possible damage to a project and ensure that any capital spent is spent wisely.
Risks are categorized from least impact to the most and are weighed against the outcome. After this categorical approach, there final assessment (even though no assessment is truly final until the end of a project) that essentially spells out the controls/steps taken to mitigate the risk. That said, risk is the only aspect of a project that can be counted on. It is something that can be prevented, minimized, and even perpetuated – as long as it gets the job done.
Any business venture is considered a risk; therefore during the process of contract administration, there is a greater attention to the details and more accountability as to how funds are spent and how goals are met. Therefore, the report must be detailed, but succinct. Goals Goals are to be in an objective, quantifiable and measurable form that ensures that the performance indicators are relevant to the outcome/output of the program activity. “Effective programs not only accomplish their outcome performance goals, they strive to improve their efficiency …” (Circular, Sec. 00, 2008). The concept of the performance-based plan is one of the best ideas to hit the world of business a long time. Accountability for funds based on performance rather than just longevity of a company existence is a better business practice. This is not just a philosophical or ethical point; it is a bottom-line business point. So many times, contracts are given to bidders for their length in the business rather than their actual performance. Contract administration is changing that concept.
When goals are outlined specifically in the contract, they are more likely to be adhered to rather than ignored. A performance-based contract with clear performance goals, strategic plans and related long-term targets with its cost specifics are what will make the contract viable and workable from both parties. Conclusion By identifying failures early on, we are able to avoid bigger and costly ones in the future. A contract is where these failures are addressed even before they happen. However, it is within the confines of the contract that there is a certain level of stickiness.
What is written here is just a fraction of a CORs responsibility. If there is anything important in managing a project, it is knowing what is to be expected from both sides of the fence. A contract is, on great many occasions, contingent on the simplest of terms. However, it goes without saying that, the simple groundwork will change and evolve to form-fit to the issue/mission at hand. Abdulaziz A. Bubshait, Incentive/disincentive contracts and its effects on industrial projects, International Journal of Project Management, Volume 21, Issue 1, January 2003, Pages 63-70.
Thomas Donaldson, Thomas W. Dunfee, Ties that bind in business ethics: Social contracts and why they matter, Journal of Banking & Finance, Volume 26, Issue 9, September 2002, Pages 1853-1865. Sanford I Heisler, Project quality and the project manager, International Journal of Project Management, Volume 8, Issue 3, August 1990, Pages 133-137, Executive Office of the President, Office of Management and Budget, Circular No. A-11 Preparation, Submission, and Execution of the Budget, Washington, DC: Government Printing Office, June 2008.