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Avoid contract administration pitfalls

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Successful contract management involves adequate contract administration. There are administrative pitfalls that need to be managed that include the risk of performance by the contractor before a consensus is reached. This situation can be untidy leading to unnecessary legal battles.

PURCHASING & SUPPLY: NYASHA CHIZU

Some contracts require preservation of intellectual property, others might require settlement of third party liabilities. Consultancy contracts rely on the quality of manpower offered for the project. There is a high risk that skills offered at the proposal stage may not be available to execute the project.

Effective administration of the contract guarantees that costs are not unnecessarily increased. It further monitors factors that may cause the contract to fail and ensures that full benefits are achieved. There is a high risk in a supply contract of receiving unsatisfactory products. Managing all these issues reduces contract disputes that attract costly legal action.

In the event of premature performance in a contract, there is high risk of potential liability to pay for unauthorised work. The contractor may claim perceived breach of contract that also attracts high costs associated with the legal process. It is, therefore, important to safeguard the commencements of work by the contractor or supplier by an exchange of a formal contract or issuance of a letter of acceptance.

In consultancy services, the quality of skills available is paramount. If adequate skills are available, risks of disruptions on the project are minimal. This is because the necessary experts with the required qualifications and skills will be available. Effective administration shall warrant that key personnel proposed are available to undertake the project.

In order to reduce risks associated with inadequate administration of the contract, procuring entities must maintain up-to-date agency procedures and practices. This limits the abuse of discretion and provides standard means of dealing with issues that provide an adequate audit trail. Staff would require adequate training on the agency procedures and practices to be effective. The training should include contract planning and management.

The risk of a supplier performing before an agreement is finalised can be reduced by requesting a power of attorney at the bid submission to effectively identify personnel authorised to act on behalf of the company. This is important in view of the principle that a valid contract is one that is authorised by a party with contractual capacity. Although at law verbal instructions are valid, it is important that all verbal instructions are confirmed in writing to reduce the risk of performance in a contract arising from an instruction from unauthorised personnel.
The general principle should be that all approvals shall be received or issued before work commences.

In order to limit the risks associated with third party liabilities, the contract manager should ensure that all obligations are adequately covered in the contract. This involves agreeing on responsibilities clearly and well in advance.

Implementation of appropriate safety standards and programmes might be necessary. This includes ensuring that suitable clauses are included in the contract to effectively manage risks associated with the protection of any intellectual property.

Consultancy contracts follow from specifications demanded in the expression of interest (EoI) and subsequent request for proposals (RFP). A qualified bid is one that meets the minimum requirements specified in the RFP. The specifications for specialists must be clear in the RFP including the means of demonstrating the availability of such skills. There is need for a post-tender compliance follow-up during contract negotiations to limit the risk associated with non-availability of proposed experts. Knowledge of the market is also necessary on the part of staff managing the contract to effectively manage the risk and any possible delay associated with non-availability of proposed experts.

Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: nya.chizu@gmail.com Skype: nyasha.chizu

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