Some common contract terms
Changes made to the contract after bidding but
before bids are received. They might be changes to dates, added drawings, or
answers to questions that came up in the pre-bid meetings.
Incentive- Penalties -
Bonuses are paid for
meeting milestones and penalties for missing them. As mentioned, be sure you
use the right kind of incentives. You might find yourself paying both an
incentive for early completion and also paying for rework of their rushed work.
Any of the contract types can include these features
the contractor agrees to changes to the
contract made after an award but before the contractor starts work.
Change order -
changes to the scope of work made after the
contractor starts work. The change order is a written request from the owner
that will have a cost associated with it. If the change is massive, then a
supplementary agreement is advisable.
Supplementary agreement -
is a large change to the
original contract (maybe a complete rewrite) and must be signed by both
The story of Contracting
It is best to start the contractor story at the
beginning. Getting the contracts signed is the last stage of a potentially
lengthy process. Procurement of significant amounts of labor, parts and labor,
or design and build services, is preceded by significant amounts of
preparation. If money is no object it doesn’t have to be this way. In the Manhattan project the major contractors signed on before they even knew what they were
bidding on. (Allis-Chalmers signed on to build 5000 compressors before they
knew the specifications)!
In the PMBOK Guide (in resources section)
procurement management is divided into six areas or phases:
•Procurement planning -
what to buy, when to buy it.
•Solicitation management -
Preparing the bidder list, getting bids, quotes, proposals, as appropriate
•Sourcing - Choosing who to
•Contract administration - Managing
the contract after it is signed.
•Contract closeout -
Completion of the work and settlement of the contract including payments and
resolution of all outstanding items
Steps of Contracting
In one instance, the cost to prepare the documents
and follow through on the process exceeded $250,000 (in addition to the cost of
the shutdown!). The organization had to hire experts to listen to the different
people in the company and define and formulate the problem scope, determine the
depth of the problems, write the specifications, and review the responses. The
team also thought through many different scenarios and tried to word the
contract to avoid any problems they could think of.
Team members also had to attend all the pre-bid
meetings. The process took about a year, with people from different disciplines
working on it (including a whole team from the owner, but not all full time, of
Not all contractor procurements are so complicated.
Some have only a few steps. If the contractor is also responsible for
engineering there might be a few more steps. Some of the steps (after the
organization has agreed to the scope of work) might be:
Preparing the specifications and drawings for
the bid, including design if needed (if design is included in the bid then
the specifications will show what is to be designed in detail). Define
work to be contracted, based on the work orders and job packages. The
better the definition at this stage the better the job will go. This
definition is another word for scope of work. Make sure the scope also
includes special conditions (such as working 200 feet off the ground;
special requirements (code welding); built-in non-productive time (for
instance, security access into an airport). The contractor should be aware
of safety training requirements, PPE, and site rules, as they impact the
contract. The contractor then bids on the scope of work usually as
expressed by drawings, specifications, or both.
The second technique commonly used on outages is to
hire a given number of qualified trades-people from a contractor on a time and
materials basis. They can be hired with and without supervision. This approach
is common where the outage consists of many smaller jobs and the contractors
have worked in the facility many times before.