Contract? What Contract? Commercial outcomes matter too

February 28, 03:25 pm - 04:05 pm AEDT

Delivering an excellent project asset does not ensure an excellent project outcome. An excellent project delivers excellent commercial outcomes too. Cost excellence for a principal is unlikely to mean cost excellence for the contractor and vice versa. A project is not a successful project if it loses money or blows the budget!

The project contract landscape keeps evolving. Contracts are more complex yet project teams are typically not “upskilling” on contracts. Managing project contracts “the same way we’ve always done” causes significant financial losses for some project participants.

Recent events show that when the unexpected happens people turn to the contract, often for the first time. Understanding what is in the contract can be critical to project success.

Project teams need to significantly improve, and continue to improve, their knowledge, skills and resources in these areas to deal with the unexpected and avoid costly overruns.

The ability to influence the outcome of a project diminishes with time. The initial set up of project contracts is critical to success.

Past mistakes show there are some key areas that can improve the prospects of success. Today’s presentation will focus on some of these as follows:

  • The Contract
  • Have a written contract that clearly sets out the rights and obligations;
  • Have the right type of contract;
  • Know what’s in the contract; and
  • Check that it covers:
    • payment
    • extensions of time
    • clarity of scope
    • scope changes
    • insurance
    • limits of liability
    • risk allocation
    • program
    • dispute resolution.

Administering the contract

Have people with the right skills and knowledge administering the contract/s;

  • Don’t keep the contract in the bottom drawer;
  • Understand and follow the contract;
  • Time bars can be fatal;
  • Administer consistently to avoid waiving rights;
  • Keep detailed records;
  • A lot of communication - needs to be managed; and
  • Don’t forget the legislation applying to the project.

Common problems

  • Wrong type of contract;
  • Starting work before contract terms are agreed; and
  • Walking away from problems.

There is an army of consultants, lawyers, barristers, judges and whole courts dedicated to dealing with the fallout from project contracts – much of which is avoidable!

Follow these tips and the likelihood of a successful project outcome is greatly increased!

General Counsel - Holding Redlich
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