In the construction sector, businesses frequently encounter significant challenges that impact their success and profitability. Whether it’s battling with main contractors or employers, navigating complex contracts and terminology, or facing issues with incorrect or delayed payments, these problems are all too common.
These challenges highlight the critical need for strategic guidance to navigate obstacles and ensure projects are completed successfully and profitably. Effective contract management is key to overcoming these hurdles and delivering successful, profitable projects.
Proper contract administration, good record-keeping, and timely delivery of contractual obligations are crucial to mitigating risks in an industry known for its low profitability, adversarial nature, and fractured client relations.
The Importance of Understanding and Administering Your Contract
Contracts are the foundation of any successful business relationship. They outline the terms, conditions, expectations, and obligations for both parties involved. By understanding and properly administering a contract, you can ensure that expectations are managed, projects stay on course, and client relationships are strengthened. However, failing to do so can quickly lead to communication breakdowns, disputes, and financial losses.
When contracts are not properly administered, relationships can deteriorate, leading to a snowball effect:
Fractured Relationships: When expectations aren’t met, frustration and distrust can quickly arise. Communication breaks down, and a once-positive relationship starts to crack.
Disputes: Misinterpretations or poor administration of the contract can lead to disagreements about what each party owes the other. These disputes can be time-consuming and expensive to resolve.
Termination: In the worst-case scenario, a major breach of contract can lead to termination. This disruption can severely impact your business operations and leave you scrambling to mitigate losses.
Damages: Breaching a contract can result in hefty penalties. You could be liable for financial damages to compensate the other party for remedying your breach.
Building a Strong Foundation for a Contract
It is essential for parties to a construction contract to start with clear and well-drafted contracts. Moreover, they should ensure that a process is in place that keeps them aware of any commercial, contract, or claims risks to the project at all times. Establishing a strong contract management strategy provides a solid foundation for successful outcomes.
Best Practices and a Solution
With 20 years of experience providing commercial, contract and dispute management to leading Developers, Main Contractors and Specialist Subcontractors in the UK and internationally, Nexus Director Scott Coulton understands these challenges firsthand and is well-equipped to share expert tips and strategies on effective contract management.
Good contract management is more than just paperwork – it’s an approach that ensures everyone involved is on the same page, minimises risks, and keeps your project running profitably. It positions you to successfully submit or defend claims for entitlement to time and money. It’s like having a built-in safety net that protects your bottom line and saves you from headaches down the road, especially if your projects encounter disputes or parties find themselves in adjudication or arbitration.
Here are Scott’s detailed tips and strategies for good contract management:
Scott’s Top Tips for Effective Contract Management
1. Understand Your Contract
Thoroughly review all contract documents to fully understand your obligations, entitlements, and the terms and conditions. Knowing the contract inside out helps prevent failure of the contractual process, misunderstandings and disputes.
2. Communicate
Set up processes for the drafting, submitting or responding to correspondences, claims, and variations. Ensure all communications are clear, documented, and addressed promptly. Effective communication manages expectations, reduces misunderstandings and keeps your entitlement open.
3. Monitor Progress
Regularly update and monitor project progress against the master programme. Document any delays or slippage and ensure they are recorded and addressed through established processes. This helps timely completion, manages expectations and minimises disruption.
4. Maintain Comprehensive Records
Set up a system to maintain organised records of all communications, claims, and variations on your company server, ensuring accessibility and transparency with your team. Comprehensive records provide a clear trail of documentation, aiding in dispute resolution.
5. Audit Payments
Regularly audit variation accounts and payment applications to identify differences between the contractor’s payment application and the employer’s certificate. Ensure any discrepancies are accurately documented and proactively addressed to facilitate resolution. Regular audits help avoid payment disputes and ensure financial accuracy.
6. Proactive Claim Management
Maintain a comprehensive schedule of all notices, detailed particulars, and extension of time and cost claims. Adopt a proactive approach to managing, submitting or responding to claims. Proactive management helps prevent claims from escalating and protects your interests.
7. Provide Regular Updates
Produce and review regular reports to highlight any commercial, contract, and claim risks. Keep all stakeholders informed to proactively identify and resolve potential issues. Regular updates ensure everyone is informed and can address risks promptly.
8. Report
Generate and review monthly reports to provide a live overview of the project’s status and any potential risks. Keep the project team updated on key claims and contract management positions. Detailed monthly reports enhance contract and claims administration, ensuring issues are identified, recorded and addressed promptly to avoid disputes.
9. Expert Advice
Seek expert advice as needed to navigate complex contractual and claims issues effectively. Ensure the project team is supported in managing and addressing any issues that arise appropriately.
Why are we different?
Nexus Consult isn’t just about industry best practices – it’s about real-world expertise. With a proven track record in international and UK contract management, we understand the intricacies of construction contracts. This translates into strategies that ensure you’re in a robust position to recover time/cost claims or effectively defend against them.
Failing to manage contracts effectively can significantly impact your project’s success. We understand the critical role strong contract management plays in achieving your commercial objectives.
Contact Nexus Consult today to explore how our Contract and Claims Management service can benefit your projects and your business.