Purpose of good contract administration AND Commercial considerations for the in
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‘Best for Project’ Outcomes - Essentially this means that all parties involved in the project are focused on achieving what is best for the project rather than putting themselves and their commercial interests ahead of the project | show 🗑
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show | - It requires everyone to be ‘on the same page’
- Focus needs to be on what will produce the best end result, whether that is cost, functionality, timing, long term performance, etc
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‘Best for Project’ Outcomes - Legislation creates adversarial relationships: - it forces each party to put their interests before others e.g. | show 🗑
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show | - Deeds of Release at PC and end of DLP
- Limited opportunities to claim additional costs for latent conditions, variations, delay damages, EOTs, program changes etc
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show | - During the design process, everyone has to work together to properly scope and document the project
- On site, everyone has to work together to get the project done
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Relationship Management - Involves: | show 🗑
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show | - Principal to users
- Head contractor to principal
- Subcontractor to head contractor
- Supplier to head contractor/subcontractor
- Design team to principal
- Design team to head contractor
- Principal to financier
- Head contractor to financier
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show | - Is important for all types of contracts in all sectors
- Minimises disputes
- Minimises unfair contract terms
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Good Administration - Assists progress of the works | show 🗑
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Meeting Management - Must ensure that meetings are properly managed: - Document who attends and who is an apology - Document time, duration and location - Schedule regularly - Meet with: | show 🗑
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show | - Safety concerns
- Hold points
- Program issues
- Two week look aheads
- Design issues
- Environmental concerns
- Traffic management
- Contractual issues
- Procurement
- Supply / trade concerns
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show | - Document/drawings
- RFIs
- Delays
- EOTs
- Payment claims
- Payment schedules
- Variations – proposals plus approvals
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Document Management - So much paperwork on construction projects - Must be able to locate a document - Not enough to number all docs if you can’t find a particular document | show 🗑
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show | - Submission of claims
- Variation requests
- Status of claims
- Value of claims
- Date of claims
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show | - Initial project budget
- Forecast cashflow
- Forecast resource plan
- Program
- Supplies / deliveries / lead times / site management
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Financial Management - Update regularly: | show 🗑
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Risk Management - Risk of: (1) | show 🗑
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Risk Management - Risk of: (2) | show 🗑
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Commercial Challenge in Construction | show 🗑
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show | - Inappropriate Head Contract type relative to the risk profile
- Estimation of project cost is deficient
- Construction methodology assumptions are not aligned to the project site
- Project client lacks financial capacity (credit worthiness)
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show | - Scopes are sub-standard
- Mismatch of Head Contract to Sub-Contract variations
- Supply chain may be unable to meet contractual obligations
- Weather and other disruptions
- Head contract payment shortfalls & cashflow
- Fraud
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Completing the Project risk events | show 🗑
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Commercial Challenge in Construction - How the impact of risk is allocated between the | show 🗑
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show | - Sub-Contractors
- Suppliers
- Consultants
- Internal Staff
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show | - Who are the key individuals that have power in the contract and how will they interact?
- Who holds what authorities under the contract?
- What is the agreed scope of the contract and how is it determined?
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Know Your Contract - Key elements to understand (2) | show 🗑
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show | - Is there anything in the contract that is “unusual” and creates a requirement beyond that normally expected (understanding that the contract may refer to other documents outside the main document? (indemnities, operational requirements, etc)
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show | - What are the termination and dispute clauses and are they time bound?
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Initial Procurement Approach - Elements of the Procurement Strategy - Supply and labour versus packaged sub-contracting decision - Sub-contractor and supplier assessments (non-price considerations) | show 🗑
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Ongoing Head Contract & Sub- Contract Management - Ongoing Head Contract Management Tips (1) | show 🗑
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show | - Issue payment claims clearly, on-time and in line with agreed requirements
- Be pro-active regarding payment claims and processing
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show | - Follow the principle that “Not documented is not done”
- Get an understanding of what else is important to the client
- If a dispute do not wait, raise it and deal with it on a timely basis
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show | - Have a completion process and follow it
- Ensure that key dates are clearly understood as they have important commercial outcomes
- Ensure warranty and defects claims are raised within relevant time periods
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show | - Carefully consider retention claims, security requirements and release deeds
- Consider where insurance claims may be relevant to significant defects in design or sub-contract works
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show | - “Profitability” is not the same thing as cashflow
- The definition of an insolvent business is one that cannot meet its financial obligations as they fall due (a “profitable business” can still be insolvent)
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Cashflow and Working Capital - Key Elements (2) | show 🗑
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Cashflow and Working Capital - Key Elements (3) | show 🗑
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show | - Understand that each jurisdiction has different approaches in commercial management that are changing
- QLD requires separate project trusts bank and accounting ledger structures to be applied for projects of a certain financial size
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show | - Head Contract funds must be received into the account and certain sub-contractor and supplier payments must be made from the account directly (not all)
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show | - Retentions are held separately and there are statutory requirements on how activities are conducted
- Understanding these requirements is an element in managing both the Head Contract and Sub-Contract relationships.
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QBCC MFRs - All licensees are required to meet the requirements of the Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018 | show 🗑
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Three main aspects of the MFRs: 1) Allowable Annual Turnover (AAT) which is essentially the Maximum Revenue that the contractor can have for the reporting year (typ financial year) | show 🗑
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show | Maximum Revenue – SC1, SC2, Cat 1 to Cat 7
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QBCC MFRs - Mandatory annual MFR reporting requirements | show 🗑
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show | - what assets can be included in the calculation of the NTA (net tangible assets) i.e. ‘Allowable Assets’
- what assets are not included in the calculation of the NTA i.e. ‘Disallowed Assets’ and ‘Intangible Assets’
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show | - what assets can be included in the calculation of Current Assets (for the ratio test)
- what liabilities must be included in the calculation of Current Liabilities (for the ratio test)
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QBCC MFRs - NTA = | show 🗑
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show | Regulation sets out the following for s17N:
- what is a debt
- when a debt is due and payable
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show | QBCC and the QBCC will determine whether there is a breach of s17N
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QBCC MFRs - If there is, QBCC may suspend the | show 🗑
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QBCC MFRs - So very real and serious consequences for failing to meet the Minimum Financial Requirements for licensees and this requires all | show 🗑
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Created by:
Asher - S