Contract Risk Management
A major area of risk in the project life cycle derives from differing interpretations of the contract by the signatory parties.
The cause of such a risk occurring may range from a deliberate attempt by one party to create ambiguity and confusion in the agreement, to an innocent misunderstanding by one or both parties.
Such misinterpretations have a potential to cause major disputes, often leading to arbitration and/or legal remedy; extremely time-consuming and expensive for either party.
The documentation that forms the contract is often very complex having been compiled during the evolution process from tender invitation through initial offer, subsequent negotiations, responses to contractor’s queries and final agreement. The final contract may lack clarity in terms of the scope and/or conditions, creating a serious risk to one or other of the parties.
As soon as practical after contract finalisation, Numada carries out a detailed analysis of the full contract document in order to do two things:
- ensure that all modifications created during the evolution from tender to final agreement have been properly noted.
- compile a summary outlining the interpretation of each key contractual element in simple language to enable the project team to better understand, obviating the need for each team member to make his/her own (and possibly different) interpretation.
To minimise contractual risks, Numada clarifies the details of the contract by extracting the key data such as:
- bonds and guarantees
- site possession, commencement, partial and overall completion
- dates, penalties and damages
- risks (‘hidden’ or apparent)
- particular conditions
- other contract specific obligations
- following the completion of the contract analysis and review, Numada will establish a contract administration system.