contract documents

Contract management is a part of project management. As a project manager, you should have a clear idea about this process. Contract management requires a lot of contract documents, and you need to understand them to perform contract management on your project. 

In today’s article, we will discuss the six components of a contract, the types of procurement contracts, and then common contract documents.

What are Contract Documents?

Contract documents are project documents that define the roles, responsibilities, scope of work, conditions, price, clauses, schedule, and any other job-specific information. They are written and serve as a legal definition of the contract. They are the legal force on the parties and the reference documents that describe the working conditions.

What Should be Included in Contract Documents?

Parties to the Contract

The parties are the first element in a contract document. For example, it should list the name of the business providing the service and the name of the entity receiving the service. 

Types of Contracts

There are three basic types of contracts:

  1. Time and Materials Contracts
  2. Fixed Price Contract
  3. Cost Reimbursable Contract

Background Section

A contract document should have a background section. This section can include details on the transaction, the parties involved, and the contract. 

Terms and Conditions

Terms and Conditions is the lengthy and extensive element of the contract document. All contracts have this provision to protect all parties involved. The issuing organization may need help from an attorney or legal experts to draft this contract document.

Signatures

All parties must sign a contract; otherwise, it won’t be a legal document. Signing the contract ensures that all parties understand the contract terms and conditions, and agree on the services to be provided and the payment terms and conditions.

Six Elements of a Valid Contract

#1. Offer

An offer is a proposal including the terms proposed by bidders to the bidding organizations to form a legally binding contract. This offer can include the scope of work, product details, etc.

#2. Acceptance

All parties must accept the offers and terms and conditions. This acceptance should be in written form and communicated to all parties formally. 

#3. Awareness

All parties must understand what they are agreeing to. This is necessary, as after signing the contract, one party cannot walk away. A contract is a legally binding document, and both parties must agree in order to change the contract terms and conditions.

Also, note that the contract can be voided if one party intentionally hides some content, or if one party can prove that they were not well aware of the contract terms and conditions while signing the contract.

#4. Consideration

Consideration is the agreed value. The value can be a service, product, or result. It is harmful to enforce the benefit of one party to another party. A ‘sufficient’ value is necessary for all stakeholders. If the contract is valued, it is sufficient consideration. 

#5. Legality

All contracts must follow the law of the land. A contract cannot be above the law and must abide by local rules and regulations. Legality refers to the contract’s subject matter and whether it is legal. 

An illegal contract is void even if all parties sign it.

#6. Capacity

Not everyone is eligible to form a contract. Capacity denotes a person’s legal, technical, and financial capacity to sign a contract.

A minor or a person with a mental disability cannot sign a contract.

Contract Documents

The following are commonly used contract documents:

  1. The Agreement
  2. General Conditions
  3. Special Conditions
  4. Scope of Work
  5. Blueprints
  6. Specification
  7. Bill of Quantities
  8. Schedule
  9. Schedule of Values by a Contractor

#1. The Agreement 

Sometimes, this contract document is known as a Memorandum of Agreement (MoA) or Memorandum of Understanding (MoU).

This contract document defines the agreement between the client and the contractor. The parties are named, and their tasks are stated. It is the primary document, and other documents are attached after it. This document will outline the overall goal of the contract, key stakeholders, and the contract fee.

#2. General Conditions

This document includes the obligations of both parties, general conditions, overhead costs, bonuses, and some other conditions. The general conditions provide the basis of the contract, establishing all parties’ rights and duties.

Usually, general conditions address how modification orders are issued, payment applications are processed, and disputes are settled.

#3. Special Conditions

Sometimes this contract document is known as particular conditions.

The special conditions of the contract specify unique job needs and instructions. They are additions or changes to the overall requirements. Particular demands include specific circumstances about certain jobs or the entire project.

#4. Scope of Work

The scope of work includes a detailed description of the project milestones, deliverables, etc. It is developed by the customer or consultants and included in the tender documentation.

The scope of work is a key project management document. After signing the contract, a change in this contract document requires approval from both parties. The contractor can demand extra payment for the added scope of work. 

#5. Blueprints

Drawings should be included in contract documents to depict the elements’ amounts, positions, measurements, sizes, shapes, and forms. Architectural, statistical, electrical, mechanical, and landscape drawings are possible.

For construction contracts, blueprints can include drawings including elevations, sections, and profiles to construct the building.

#6. Specifications

Technical specifications describe the materials, quality, equipment required for a task, and end product. The client should explain them before the tendering stage. However, since they lack cost, quantity, or drawing information, bidders must use them in conjunction with other data, such as amounts, schedules, and drawings.

Specifications vary depending on the designs’ development level, ranging from performance to prescriptive specifications.

For specifications to be more effective:

  1. They must be written by trained personnel or consultants.
  2. They must be created in a collaborative and transparent manner.
  3. Specifiers must be visible and available to the project team from start to finish.

#7. Bill of Materials

The bill of materials (also known as the BoM or BM) is a project document created by cost consultants that specify quantifiable items for the work. A cost consultant uses drawings and specifications to create the bill of materials.

A bill of materials is a detailed description of the materials, parts, and labor needed. 

You can measure length, area, volume, weight, or time quantities. Preparing a bill of materials necessitates the completion of the design and the creation of a specification.

Tenderers are furnished with a bill of quantities to prepare a price for the job. The bill of quantities aids bidders in calculating costs for their tender. 

It ensures a fair and accurate tendering process by requiring all bidders to complete the same numbers. Based on the bill of materials, the contractor presents a proposal. The tenderer’s offer is this priced bill of quantities. 

Because the proposal is made up of defined elements, the price and individual items of one proposal can be easily compared with other proposals. This allows a thorough evaluation of the proposal to see if any offer is exceptional or bad value. This information can help in tender negotiation.

The priced bill of quantities is helpful in the following ways:

  1. It assists the successful tenderer in reaching an agreement on the contract sum.
  2. It aids in the appraisal of variations and provides a rate schedule.
  3. It offers a foundation for valuing interim payments.
  4. It serves as a foundation for preparing the final account.

The bill of materials should list all work needed but not describe it. Describing the items can lead to a mix-up between information in the bill of quantities and details available in the specification.

When there is a mismatch between the bill of materials and the rest of the contract documents, the price in the bill of materials will take precedence.

The bill of materials is also known as a bill of quantity.

#8. Schedule

A schedule is a graphic presentation of project activities. Project managers use Gantt Charts, Network Diagrams, CPM, and PERT techniques to create project schedules.

A project schedule outlines the delivery date, project milestones, project length, and other essential details. Tasks are specified and classified under work breakdown structures and the WBS dictionary within a project schedule, such as civil, electrical, and mechanical activities.

#9. Schedule of Values by a Contractor

A contractor provides a value schedule that lists all project tasks. It will divide the contract amount among the various parts of the task. The schedule of values is an effective management tool for assessing progress. This document can assist in keeping money flowing and bills paid on schedule.

Benefits of Contract Documents

Contract documents provide many benefits to all stakeholders, such as:

  1. The clarity in business relationships, agreements, and parties’ rights.
  2. Avoiding potential contract disputes and litigation.
  3. Preventing misinterpretation of communications and agreements.
  4. Better management of commercial relationships.
  5. Built-in arrangements for resolving disputes through arbitration, mediation, or a court in a particular jurisdiction.
  6. Documentation to allow comprehensive representation and review by an experienced business law attorney.

Conclusion

Contract documents are essential for every project since they specify all parties’ rights and duties. For effective project management, the contract documents must include all contract details.

Well-created contact documents are crucial for avoiding problems. Should there be a claim, these documents help prepare an effective claim submission.