Business contracts for dummies
Contracts are part and parcel of business operations in the construction industry. They are the driving force behind many construction projects, and hence their role cannot be outlawed. In the construction sector, learning about contracts is, therefore, a basis for preparing learners to day-to-day activities they are set to face in their work. In construction, contracts seek to solve a wide range of issues that could be impossible to execute without the use of contracts. The central purpose of a contract outlines all the parties involved in the construction process (Lowe and Leiringer, 2008, p. 72). The client is at the discretion to choose whom to offer the duty. The qualifying contractor is now offered the mission where all responsibilities, rights, and risks are outlined. Upon agreement, both parties sign the contract, which clears the way for the contractor to start the project. A contract is a binding agreement of a working relationship, where every party is expected to execute their duty within the stipulated guidelines.
Contracts come in different types bound within the conditions provided by the agreement. These include the guaranteed maximum price contract, the lump sum contract, the unit price contract, the cost price contract, and the integrated project delivery. Before agreeing to any contract, the contractor should choose the type that suits best suits the organization. Financial interests need to be considered to ensure that the contractor can complete the project within the indicated time (Varnäs, Balfors and Faith-Ell, 2009, p. 1215). Failure to choose the most appropriate form of the contract can lead to loss of the contract. For instance, a contractor, who is starting a new project, may fail if he or she agrees to a lump sum contract if the calculations are wrong. It is better if such a contractor utilizes the unit price contract where it is possible to appropriate the units of equipment utilized.
Applying for a contract is a procedure that follows legal and logical frameworks. It starts with identifying and selecting the contract. Then gathering necessary information follows. The third step involves choosing a negotiator. The negotiator may be a legal firm or a knowledgeable individual with the contracting process (Varnäs, Balfor’s and Faith-Ell, 2009, p. 1215). The contract review process follows where the winning company is awarded the contract. Once the firm has assigned the contract, the process culminates by signing the contract. Failure to follow this process often culminates to losing the contact to competitors. At other times, a firm that chooses to use illegal ways such as offering bribes may eventually face prosecution.
Each type of contract comes with different provisions. Standard key provisions include the names of the involved parties, agreements and considerations, and obligations. However, the provisions vary regarding payments, duration of the contract, insurance, termination, confidentiality and limitation of liability. For instance, regarding the payment requirement, there exists a major difference between the integrated project delivery and the lump sum contract (Pinto, 2007, p. 15). The lump sum contract provides for payment in the very onset when the contractor makes a rough estimate of the cost. On the other hand, using the integrated project delivery, a contractor is paid after incremental completion of the project.
Warranties and bonds are particular agreements that assure a client that the contractor is liable for all defects found after the construction is complete. There exist various types of warranty bonds inclusive of bid bonds, performance bonds, labor bonds, and maintenance bonds (Pinto, 2007, p. 15). To avoid defaulting, the type of bond agreed must be specified in the contract document.
In summary, while applying for a contact, a firm should ensure that they meet the threshold of requirements. When a firm is awarded a contract, and the conditions are not clear, it should seek legal assistance to avoid losing the contract. Avoiding following the right procedures would eventually lead to immense failure, loss of the contract, and even legal suits.
Construction is one of highest professions that intensively make use of the human resource. Therefore, construction companies need to ensure that they follow legislations regarding managing their employees. Such legislations are covered in the Employment Act where every employer is expected to treat their employees with dignity and provide them with a safe working environment (Lowe and Leiringer, 2008, p. 76). To maintain an appealing working environment, it is expected that an employer motivates the employees through friendly working environments and ample communication.
Managing employees starts by the recruitment process. This process involves advertisements, conducting interviews, and finishing by selection of the most qualified employees. The process of recruitment ought to be rational and non-biased, that is all applicants should be selected despite their gender or age. The process ought to ensure that minors are not employed as described in the Employment Act.
After recruitment, it is important to ensure that the employees are prepared and motivated for the job. Motivation approaches can be derived from various motivation theories. Motivation among employees is necessitated by three most important factors: needs, behavior, and satisfaction (Ramlall, 2004, p. 55). Applicable theories include the Maslow’s theory, the Aldefer’s ERG theory, the acquired needs theory, the cognitive evaluation theory and the two-factor theory. A variable combination of these theories can be used to ensure that the employee's needs are met, the behavior in the working environment is also acceptable, and hence the employees are satisfied.
Creating a safe working environment for workers is one of the best practices that turn an organization into a hub of employee satisfaction, and hence, a harmonized working environment is witnessed. The construction environment is similar to other business environments that utilize the human resource (Isik et al., 2009, p630). Human resource techniques used to motivate employees include proper and timely payments, offering rewards to the best performing employees among other practices. A positive working climate in a construction environment results into a good working environment where the successful realization of the organization's goal is observed.
With an improved working environment, workers can unleash all their potential, which consequently enhances the performance of the organization. It is necessary to create a kind of competitive environment by using techniques such as setting targets, providing performance rewards and appraisals (Varnäs, Balfors and Faith-Ell, 2009, p. 1217). When the best employees are rewarded, other employees automatically feel challenged and want to be appreciated as well. It, therefore, falls into place that the construction environment turns out to be highly competitive among the employees (Isik et al., 2009, p. 637). Training them on the dangers, they are exposed to, how to avoid such ones and how to make saving every day are other techniques that can enhance a good management of the human resource. By actively applying them, a construction company invokes interests within the employees. On the other hand, the employees are motivated and will always work towards the best interests of the organization. Managing people is, therefore, a core idea in a construction environment.
Procurement and Tendering
. Procurement and tendering can be described as a system used to select the most efficient and effective way to handle financial constrain which are most likely to affect a project (Varnäs, Belfor’s, and Faith-Ell, 2009, p. 1218). There are various methods of procuring, and the selection of a method depends on the project type.
The traditional method is one of the procuring methods. A major feature of this procurement method is the separation of design from the actual implementation of the project. The project cost is known before the actual implementation of the project, but an adjustment may be made as the need arises. In simple terms, the traditional method involves design, bid, and implementation (Pinto, 2007, p. 17). The most suitable contractor is chosen using the competitive tendering method. The method is simple to understand and apply by any client, but the fact that designs are separated from actual implementation makes the contract period to be prolonged.
Designing and building in this method are the responsibilities of the contractor to ensure. In return, the contractor sends an invoice of the total amount of cash that has been spent on the project. To get a suitable contractor, would-be contractors are required to write down a proposal. The proposal should have a design and a tender figure of the project (Harris and McCaffer, 2013, p. 7). The contractor must be competitive and preserve quality. The two-stage tendering method of appointing a contractor is effective in risk management since the tenderer maintains a design liability insurance to cover for the risk. Choice of a suitable contractor brings challenges since tenders are working with different designs.
In managing procurement, the contractor (who is now the client), looks for a consultant procurement officer to help through the procurement process. The consultant also helps the client in selecting the management contractor through tenders and interviews (Waara, 2008, p. 137). The management contract’s payment is based on the work package and agreed on a fee. This method delivers a high-quality product though it requires experienced clients.
The public-private method involves a partnership of public and private sectors to get all the facilities required in undertaking the project. The method is most effective in infrastructure development. This project takes the turnkey contract form, that is the private sector design, and is implemented according to the public sector’s specification and needs. The method is economic friendly and a proper mechanism for developing infrastructure.
Patterning procedures are examined by the project team members, and any financial constraints likely to occur are examined. Audits and reports concerning any partnership are done regularly (Harris and McCaffer, 2013, p. 10). The main objective of these audits is to assess the risk. The partnering charter may be used in cases where the client wants to contract without changing the nature of the partnership
Negotiation process of a project requires preparation by the project team. Preparation involves identifying the issues you want to negotiate, getting information about these issues, and classifying this issues in order of their complexity. Some of the issues involved in negotiation are payment terms, contract volumes, contract kickoff, and cost of the contract.
The tendering process is tedious. To eliminate inefficiencies, the use of modern technology is necessary. Studies have shown that electronic tendering saves a project’s cost by about 7 %. As the rules stipulate any tender invitation for any project, there must be an on-line advertisement.
All contractors are required to submit their project design and tender pricing documents. After the client, has sent the invitation to tender, the main objective of this documentation is to have an organized project. The contractor should also produce contract conditions which would be kept by the client for the records.
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