PL2.

05 PROJECT AND CONTRACT MANAGEMENT

BY: PHILIP BIEGO
biegophilip21@gmail.com

CHAPTER 1: INTRODUCTION TO PROJECT MANAGEMENT 2. Projects play a crucial role in implementing organizational strategies and
achieving corporate goals.
3. Projects lead to the development of innovative products, services, and
1.1 Concept of Project Management procedures.
4. Projects drive change management and innovation within organizations.
5. Project management encourages internal collaboration across functions and
Projects are distinct from routine organizational processes and refer to one-of-a-kind organizations.
endeavors with a specific start and end. 6. Project managers perform typical management activities: planning, organizing,
motivating, leading, and controlling.
Processes are continuous and use existing systems, while projects involve creating
7. Projects aim to satisfy client requirements within specific technical, cost, and
something new.
schedule objectives.
Project management is the application of managerial competencies to achieve 8. Projects are discontinued after meeting performance targets or if outcomes no
strategic organizational goals within defined time and cost constraints. longer provide benefits.
1.2 Importance of Project Management Project Stakeholders
Stakeholders are key individuals, groups, or organizations that can be directly or
indirectly affected by a project's decisions, activities, or outcomes. They play a crucial
1. Proper project management helps organizations save time and money by efficient
role in the success and execution of a portfolio, program, or project. Identifying and
planning and resource allocation.
managing stakeholders is vital for ensuring project alignment with organizational goals
2. It improves internal communication, cooperation, transparency, and
and for garnering support throughout the project life cycle.
accountability.
3. Project management facilitates better business decisions through data-driven Internal Stakeholders:
insights and proactive issue identification.
1. Top Management: As the decision-makers and project sponsors, top
4. Organizations can learn from previous projects and implement best practices for
management's support is essential for project initiation and resource allocation.
future success.
2. Accounting: Accountants play a vital role in monitoring project budgets, financial
5. In today's fast-paced world, project management is essential to cope with
reporting, and ensuring cost efficiency.
shortened product life cycles and narrow product launch windows.
3. User Department and Other Functional Managers: These managers represent
6. Complex and technical products require effective project management to handle
the departments or functional areas impacted by the project and contribute
design and production challenges.
valuable insights and resources.
7. Global markets demand agile responses to customer and supplier needs,
4. Project Team Members: Comprising the core execution team, their commitment,
achievable through project management.
productivity, and collaboration significantly influence project outcomes.
8. Low inflation limits profitability through price increases, making internal
efficiency crucial for profit growth, which project management can achieve. External Stakeholders:
1.3 Characteristics of a Project
1. Clients: Clients are the beneficiaries of the project's deliverables and are keen on
timely project completion to reap benefits.
1. Projects are one-time activities with a defined life cycle, running for a set amount
2. Competitors: Monitoring competitors' projects and learning from their
of time before disbanding.
experiences can provide valuable insights for project managers.
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3. Suppliers: Suppliers provide the necessary resources and materials for the Project management frameworks provide structured methodologies and processes to
project, and their timely and efficient deliveries are crucial for smooth progress. guide project execution.
4. Environmental, Political, Consumer, and Other Intervener Groups: These
Popular frameworks include PMBOK (Project Management Body of Knowledge) and
external stakeholders can influence the project's development, success, or social
PRINCE2 (Projects in Controlled Environments).
acceptance and must be considered during planning and execution.
5. Financiers: Organizations often secure project funding through loans or financial Project Management Framework
institutions, and financiers have a keen interest in project financial health and
viability.
6. Government/Regulatory Agencies: Projects must comply with regulations, A project management framework is a standardized set of processes, activities, and
standards, and approvals from government bodies, ensuring public safety and tools used to plan, execute, control, and close a project. It provides structure and
welfare. guidance, ensuring project success through effective collaboration and adaptability.
7. Labour Unions: Representing workers' interests, unions advocate for fair wages, Frameworks are typically developed by professional bodies or industry groups.
good working conditions, and workers' rights in long-duration projects.

Role of Key Stakeholders: Key Components of a Project Management Framework:

1. Clients: Prioritize timely delivery and meeting their needs while expecting value Project Lifecycle: Comprises five stages - Initiation, Planning, Execution,
for their investment. Management, and Review - with specific goals and milestones for each phase.
2. Competitors: Can influence the project's success and provide valuable lessons
from their own experiences.
3. Suppliers: Require clear communication, coordination, and monitoring to ensure 1. Initiation: Brainstorming, research, and stakeholder interviews to identify project
timely deliveries and project progress. components.
4. Intervenor Groups: Their concerns, feedback, and involvement may impact 2. Planning: Determining team involvement, progress milestones, risk analysis, and
project development and success. management.
5. Top Management: As project sponsors, they authorize projects, provide support, 3. Execution: Actual production of deliverables and assigned tasks.
and ensure alignment with organizational objectives. 4. Management: Documentation, monitoring, and reporting project progress.
6. Project Team Members: Their dedication, expertise, and collaboration directly 5. Review: Reflecting on project outcomes, setbacks, and improvements with
contribute to project success and outcomes. stakeholders.
7. Accounting: Monitor project budgets, costs, and financial reporting to maintain
Project Control Cycle: Active monitoring and management of the project, involving
cost efficiency and control.
five stages:
8. Functional Managers: Balancing team member responsibilities and ensuring
cooperation between functional and project roles. 1. Drafting the initial plan.
9. Financiers: Invest in projects and require continuous monitoring of financial 2. Monitoring project progress.
health and expected benefits. 3. Evaluating actual progress against planned progress.
10. Government/Regulatory Agencies: Ensure compliance with regulations and 4. Identifying deviations and analyzing implications.
standards for public safety and project approval. 5. Taking corrective action if necessary.
11. Labour Unions: Advocate for fair treatment, wages, and workers' rights, especially
Tools and Templates: Ready-made structures to implement the framework effectively.
in projects with significant labor involvement.

Common Project Management Frameworks:

1.5 Project Management Frameworks

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1. Traditional project management (PMBOK)
2. Agile 7. Critical Thinking: Objectively analyzing issues to make informed decisions.
3. Lean
4. Critical chain project management (CCPM) 8. Decision Making: Making timely and well-informed choices based on available
5. Critical path method (CPM) information.
6. Event chain methodology (ECM)
7. PRINCE2 9. Prioritization: Identifying and managing important tasks and conflicting activities.
8. Scrum
9. Six Sigma 10. Political and Cultural Awareness: Understanding how organizational politics and
10. Kaizen culture affect project acceptance.
11. Waterfall methodology
11. Organizational Skills: Efficiently coordinating time, workload, resources, and
Project Management Framework Best Practices:
schedules.

12. Planning Skills: Forecasting and preparing for project completion to achieve goals
1. Maintain controlled communication across teams.
and objectives.
2. Utilize templates for efficiency and consistency.
3. Create a central repository for project-related information.
13. Proactive Approach: Taking preventive measures and initiating actions to control
4. Reflect on completed projects to identify areas for improvement and future
situations.
enhancements.
14. Time Management: Effectively using time to ensure timely task completion.
Project Management Skills:
15. Cost Management: Controlling expenses within the assigned budget.
The project management (PM) plays a crucial role in guiding and overseeing the
project's lifecycle. They possess a range of skills essential for successful project
16. Problem Solving: Analyzing issues and finding effective solutions.
management:
17. Adaptability: Being flexible and adjusting to changes or new conditions.
1. Project Management Knowledge: Understanding project management concepts,
practices, tools, and terminology.
18. Conflict Management: Managing conflicts to enhance project outcomes.
2. Business Domain Knowledge: Sufficient comprehension of the project's business
19. Task Management: Efficiently managing tasks through their lifecycle until
aspect to ask relevant questions and assess feasibility and benefits.
completion.
3. Communication: Articulating clear and concise messages to stakeholders through
20. Quality Management: Overseeing tasks to meet or exceed expectations.
various means.
21. Sense of Humor: Using humor to alleviate stress in the project team.
4. Leadership: Providing direction, encouragement, and guidance while maintaining
project control and accountability.
22. Motivation, Team Building, Coaching, and Influencing: Bringing resources
together, fostering collaboration, and aligning the team with project goals.
5. Negotiation: Skillfully leading discussions to reach mutually beneficial
agreements.
By possessing these skills, project managers can lead projects to successful
outcomes and ensure efficient team collaboration.
6. Risk Management: Identifying, analyzing, and controlling potential project
threats.
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 Project Life Cycle: 3. Planning benefits a project organization by providing clear objectives, resource
allocation, risk management, and the ability to track progress and adapt to
changes.
A project management life cycle (PMLC) is a series of processes to achieve the
4. Primary challenges in introducing project management in companies include
project's intended results. It comprises four phases: initiation, planning, performing,
resistance to change, lack of project management expertise, difficulty integrating
and closing. Each phase's duration and effort depend on the project's specifics, varying
projects with ongoing operations, and organizational culture.
from weeks to years.
5. Advantages of project management include better organization, efficient
resource allocation, clear objectives, and improved communication.
1. Initiating Phase: Involves identifying a need, problem, or opportunity and Disadvantages may include increased overhead and inflexibility in rapidly
obtaining authorization through a project charter, outlining objectives, changing environments.
benefits, budget, and key assumptions. For external resources, a request for 6. Key characteristics of projects include uniqueness, temporary nature, clear
proposal (RFP) is prepared. objectives, distinct resources, and a defined start and end.
7. The project life cycle comprises initiation, planning, performing, and closing
2. Planning Phase: Thoroughly planning the project by defining scope, phases. Understanding it is crucial for effective project management and decision-
identifying resources, developing a schedule and budget, and assessing risks. making.
These form the baseline plan for project execution. 8. Key stakeholders in a highway construction project may include the government,
local communities, contractors, environmental agencies, and residents. Their
3. Performing Phase: The project team, led by the project manager, executes interests can range from economic gains to environmental impact concerns.
the plan, accomplishing project objectives and producing deliverables. 9. Early stakeholder engagement can enhance project outcomes by identifying key
Resources are utilized as per project requirements, with progress monitored, concerns, gaining support, and incorporating feedback to align the project with
controlled, and documented. stakeholders' needs and expectations.
10. The project development cycle of a major development finance institution
4. Closing Phase: The final phase involves various actions like payments, staff involves concept development, project appraisal, investment decision, project
evaluation, post-project evaluation, lessons learned documentation, and implementation, and post-project evaluation and monitoring.
archiving project documents for future improvements. 11. The successful project typically follows a well-planned approach, meets
objectives within budget and schedule, and receives positive feedback. An
5. Other Project Life Cycles: Different authors propose variations of project life unsuccessful project may lack clear planning, exceed budget, experience delays,
cycles, tailored for specific project categories. Organizations follow specific and fail to meet expectations.
project planning and appraisal procedures to secure funding.

Challenges of Managing Projects: CHAPTER 2: PROJECT FORMULATION AND INITIATION

Project management faces challenges like:
2.1 The Concept of Project Formulation:
resource management, accurate estimating, authority clarity across
organizational boundaries, and the need for real-time controls.  Project formulation is the systematic development of a project idea to make an
investment decision.
Practice Questions:  It includes preliminary planning and a joint effort by a team of experts familiar
1. Features of a project on org: Projects are unique, temporary endeavors with with project strategy and objectives.
specific objectives, distinct from day-to-day processes in organizations.  Aims to objectively analyze project potential from all angles, examining technical,
2. Procurement planning for infrastructure projects is complicated due to varying economic, financial, and commercial aspects.
resource needs, multiple stakeholders, large budgets, lengthy timelines, and  In development projects, it assesses alignment with government policies and
regulatory requirements. involves stakeholders' participation.

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 Commercial projects go through steps like problem identification, objective  Site Selection Studies: Identify strategic project location, especially for material
setting, feasibility study, business plan, risk assessment, public enquiry, and transportation.
project charter authorization.  Laboratory Studies: Assess material suitability and quality standards.
 Project formulation results in a project proposal containing vital information for  Pilot Plant Studies: Real-life performance evaluation on a smaller scale.
evaluation and approval. e. Detailed Project Report: An exploded blueprint outlining all steps, activities, and
resources required for project implementation.
Note: Project formulation is the crucial first step in deciding whether a project is
viable and should proceed to the next phase.
Note: These stages ensure a comprehensive analysis of the project's potential and
viability at different levels.
2.2 Purpose of Project Formulation:
1. Understand various project dimensions broadly.
2. Help project authorities decide whether to conduct a detailed feasibility study or 2.4 Project Formulation Techniques:
drop the project.
Project Formulation Techniques:
3. Present an unbiased and clear-cut picture of the project idea.
4. Identify deficiencies and gaps and take remedial measures in advance. 1. Management-driven: Projects originate from top-level managers' strategic
5. Address projects that may lead to losses promptly. planning, guiding project planning and implementation.
6. Prioritize pre-investment studies and government investment decisions. 2. Beneficiary-driven: Ideas arise from operational managers proposing changes to
7. Undertake a detailed feasibility report only when positive indicators support the benefit lower-level staff.
project. 3. Stakeholder-driven: Projects initiated by stakeholders like alumni, shareholders,
8. Assess technical, economic, and input aspects to determine project feasibility. or customers.
4. Regulatory-driven: Regulatory requirements necessitate new projects, e.g., ISO
Note: The purpose of project formulation is to ensure a well-defined and well-
certification or hosting events.
assessed project before proceeding to detailed investigations.
5. Political-driven: Projects initiated due to political pressures, often lacking proper
planning and budget constraints.
6. Success Factors: Active discussions between beneficiaries and leadership, "top-
2.3 Stages of Project Formulation:
down, bottom-up" approach, and adherence to proper project formulation steps
a. Preliminary Project Formulation: Identifying project ideas and opportunities for are crucial for success.
investment.
Critical Success Factors in Project Definition:
b. Pre-Feasibility Study: A preliminary assessment before a detailed feasibility study
to save time and costs. 1. Clear Project Scope: Ensure the project's scope is well-defined and understood by
c. Feasibility Study: Assessing technical and economic viability to justify the all stakeholders.
investment decision. 2. Precise Technical Requirements: Avoid vague technical specifications to prevent
d. Support or Functional Studies: Conducted for specific elements or functions of misunderstandings.
large investment projects. They include: 3. Realistic Estimates: Provide accurate assessments of costs, timelines, and
 Environmental Impact Studies: Assess effects on the environment (biophysical, expected benefits.
social, and economic). Often mandatory for project approval. 4. Comprehensive Risk Assessment: Identify and address potential risks thoroughly.
 Market Study: Forecast demand and analyze market patterns for project 5. Appropriate Project Strategy: Choose a suitable approach to achieve project
goods/services. goals.
 Materials Study: Determine resource availability for project implementation. 6. Financial Considerations: Carefully manage cash flow and funding provisions.
 Technology Selection Study: Evaluate and select the best-suited technology and 7. Stakeholder Engagement: Address the interests and concerns of all stakeholders
plant size. involved.

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8. Understanding Staff Motivation: Make accurate assumptions about staff behavior  These constraints are depicted in a triangle, where each side represents one of
and motivation. the three objectives: cost, time, and quality.
9. Managing Change: Anticipate and address the effects of project-induced change  The scope of the project, which defines the work to be done and deliverables, is
on individuals. at the center of the triangle, as it directly impacts all three objectives.
10. Objective Project Approval: Avoid approving projects based on political or  Any alteration or change in one objective will affect the other two. For example,
intuitive reasons. increasing the scope may lead to higher costs and longer timeframes.
 The Iron Triangle helps project managers understand the trade-offs involved in
Many large-scale development projects in Kenya have faced challenges due to
managing projects effectively, as they often need to balance these three
neglecting these critical factors. Project formulators should prioritize addressing these
constraints to achieve project success.
issues to enhance project success.
 The most critical or outstanding objective is often determined by the project's
Critical Success Factors in Project Implementation: specific context and requirements. For some projects, cost might be the most
limiting factor, while for others, time or quality might take precedence.
1. Clear Project Definition and Business Case: A well-defined project with a strong
 Once the most critical objective is identified, the other constraints are adjusted
business case lays the foundation for successful implementation.
accordingly to fit within the primary constraint.
2. Effective Project Strategy: Choosing the right project strategy is crucial for
 The Iron Triangle guides project planners and managers in making informed
meeting cost, time, and quality objectives.
decisions about resource allocation, risk management, and project prioritization.
3. Management Support: Strong support from higher management is essential for
 It is important to communicate and align expectations with project stakeholders
smooth project execution.
regarding the relative importance of each constraint early in the project planning
4. Adequate Resources: Ensuring sufficient funds and resources are available to
phase.
meet project requirements.
 The Iron Triangle serves as a valuable tool for evaluating project progress and
5. Efficient Procurement: Competitive purchasing of materials and inputs helps
identifying necessary adjustments during project implementation.
control costs.
6. Effective Variation Management: Maintaining firm control over authorized
project variations to avoid delays and cost overruns.
Project Initiation
7. Technical Competence: Having skilled and knowledgeable personnel to handle
technical aspects of the project. Project initiation is the first phase of the project management life cycle, involving the
8. Quality Culture: Establishing a culture of quality throughout the organization to start-up of a new project.
maintain high standards.
In this phase, the business problem or opportunity is identified, a solution is defined, a
9. Suitable Organizational Structure: A well-designed organizational structure that
project is formed, and a project team is appointed.
facilitates project coordination and communication.
10. Effective Communication: Establishing good project communications to ensure all 1. A detailed business case is created to justify the project, outlining the problem,
stakeholders are informed and engaged. alternative solutions, benefits, costs, and risks.
11. Motivated Staff: Ensuring the project team is motivated and committed to project 2. Measurable objectives are established, providing targets to guide project success
success. and resource allocation.
12. Conflict Resolution: Quick and fair resolution of conflicts to prevent disruptions to 3. A feasibility study is conducted to determine the project's viability and likelihood
the project. of success.
13. Health, Safety, and Environment: Prioritizing health, safety, and environmental 4. The project charter is developed, authorizing the project and detailing project
considerations to protect workers and the surrounding environment. elements, goals, scope, stakeholders, risks, and budget.
5. Stakeholder identification and analysis are performed to understand their
Triangle of Objectives in Projects (Iron Triangle)
interests, influence, and impact on the project.
 The Iron Triangle, also known as the Triangle of Objectives, is a fundamental 6. A strong project team is assembled, roles and responsibilities are assigned, and a
concept in project management, representing the interdependent relationship project office is established.
between three key project constraints: cost, time, and quality (or scope). 7. The entire project initiation stage is reviewed to ensure completeness and
accuracy.
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The initiation phase sets the foundation for successful project planning, execution,  Scoring Model: Projects are evaluated against specific parameters, and the
monitoring, and controlling in subsequent phases. one with the highest score is preferred.
PROJECT SELECTION  Economic Value Added (EVA): EVA assesses project profitability after
deducting all costs of capital.
Project selection is a critical process in project management that involves evaluating
 Opportunity Cost: Used when selecting one project over another, considering
and choosing projects that align with an organization's objectives and yield
maximum performance. When an organization has multiple project opportunities, the benefits lost by not choosing the alternative.
they need to analyze and prioritize them to ensure wise investment decisions.
CONSTRAINED OPTIMIZATION METHODS FOR PROJECT SELECTION:
Sometimes use complex mathematical concepts to account for certain variables in
Benefits of Project Selection and Prioritization: the project selection process. They generally involve numbers and hard figures,
and they turn real-world problems into equations to help solve them. They are
1. Better ROI: By comparing projects based on returns, organizations can prioritize normally employed in cases where a decision has to be based on a multi-objective
investments that offer higher returns on investment. criterion.
2. Increased Efficiencies: Evaluating project feasibility upfront helps identify
potential inefficiencies and capacity constraints, leading to smoother execution.  Integer Programming: Prioritizes whole numbers over partial results, suitable for
3. Strategic Alignment: Selecting projects that align with organizational goals scenarios where fractional outcomes are not desired.
ensures that resources are invested in projects that contribute to the overall
 Linear Programming: Focuses on maximizing one variable by manipulating other
business strategy.
linear variables, such as reducing project cost by shortening completion time.
4. Consistency and Transparency: Standardized selection criteria lead to consistent
approvals and transparent decision-making processes.  Dynamic Programming: Breaks down complex problems into smaller, manageable
5. Shorter Time-to-Market: Prioritizing projects enables organizations to act quickly, pieces, making decision-making more structured.
gaining a competitive advantage by reaching customers ahead of competitors.  Nonlinear Programming: More intricate than linear programming, this method
6. Successful Project Delivery: A well-considered project selection process increases involves optimizing variables with nonlinear relationships.
the likelihood of successful project outcomes.  Multiple Objective Programming: Combines various methods to create a system
of functions for optimizing decisions based on multiple objectives.
Quantitative Project Selection Methods
Quantitative project selection methods enable organizations to make informed
Quantitative project selection methods involve evaluating and comparing various decisions by objectively assessing project feasibility, profitability, and alignment
projects based on financial and mathematical criteria. Some important methods in this with strategic goals.
category are:
Financial Methods: Project Design
 Cost-Benefit Analysis: Projects with a Benefits-to-Cost Ratio (BCR) greater  Project design is the process of organizing ideas, materials, and processes to
than 1 are considered favorable, with higher BCR indicating better achieve a specific project goal efficiently. It helps project managers avoid errors
opportunities. and ensures that key components, such as the project timeline and budget, stay
 Payback Period: The time taken to recover the total project investment on track. It involves planning out the project's key features, structure, criteria for
should ideally be shorter, making the project more attractive. success, and major deliverables during the early phase.
 Net Present Value (NPV): The NPV must be positive for the project to be
profitable, with higher NPV indicating a better choice. Elements of General Project Design:
 Internal Rate of Return (IRR): Higher IRR signifies a more favorable return on
 Description of the organization or corporation responsible for project
investment.
development.

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 Overview of the project's origins and how it will be developed. 8. Distinguish between financial and economic analysis of projects.
 List of project objectives, milestones, goals, and outcomes. 9. Explain the logical hierarchy of objectives for a government's dam construction
 Detailed coverage of products, deliverables, evaluation and monitoring standards, project based on the triangle of objectives.
and success criteria. 10. (Question not provided)
 Discussion of budget estimating criteria and principles.

Elements of a Good Project Proposal from Logical Project Design: CHAPTER 3: PROJECT INVESTMENT APPRAISAL
 Project Background: Explains the project's development history and the problem
it aims to solve. 3.1 Introduction
 Project Context: Describes the internal and external environment impacting the The chapter begins with an overview of project investment appraisal, which is a
project, including risks and opportunities (SWOT analysis). critical process in project management. It sets the stage for the subsequent
 Risks and Assumptions: Identifies potential risks and assumptions that could sections, explaining the importance of assessing the viability of investments
impact the project's success. before committing resources.
 Goals and Objectives: Outlines the project's high-level vision (goal) and specific
targets to achieve (objectives). 3.2 Purpose of Investment Appraisal
 Output and Outcomes: Focuses on direct results and changes in beneficiaries' This section delves into the objectives and significance of investment appraisal. It
lives. highlights the reasons why organizations undertake this evaluation, emphasizing
 Beneficiaries or Stakeholders: Identifies the target group whose circumstances its role in ensuring sound financial decision-making and maximizing returns.
the project aims to change.
 Activities: Lists the actions undertaken to achieve project objectives. 3.3 Project Investment Appraisal Techniques
 Timeline: Provides a chronological overview of planned activities in the project. Here, various methods and techniques used for project investment appraisal are
 Work Plan: Detailed description of the sequence of project activities, including discussed in detail. The section covers popular techniques such as Net Present
responsibilities and objectives. Value (NPV), Internal Rate of Return (IRR), Payback Period, Cost-Benefit Analysis,
 Budget Estimates: Specifies allocated funds and how they will be utilized in and Economic Value Added (EVA). Each technique's strengths and limitations are
project activities. analyzed, enabling readers to understand their applicability in different project
 Sustainability: Addresses the project's long-term impact and continuity after scenarios.
completion.
 Monitoring and Evaluation Strategies: Approaches for measuring and assessing 3.4 Factors Affecting Project Returns on Investment
project success and performance. This part explores the factors that influence project returns on investment. It
examines both internal and external factors, including market conditions,
Practice Questions (Partial List): regulatory environment, project scope, resource availability, and technological
advancements. Understanding these factors is essential for making informed
1. Explain the importance of a "top-down, bottom-up" approach in planning investment decisions.
development projects.
2. Discuss the essential characteristics that rural development project objectives 3.5 Methods of Financing and Contracting Options in Projects
should fulfill. The final section focuses on financing and contracting options available to project
3. Outline the essential contents of a feasibility study report for a road construction managers. It covers traditional and innovative financing methods, such as equity
project. financing, debt financing, public-private partnerships (PPPs), and crowdfunding.
4. Highlight key elements of a project proposal for funding from a major donor. Additionally, various contracting options, like lump-sum contracts, cost-plus
5. Identify stakeholders for a proposed milk processing factory and their interests. contracts, and time and material contracts, are explained, along with their
6. Outline a structured project stakeholders' analysis process. advantages and disadvantages.
7. Explain the difference between quantitative and qualitative project appraisal Investment Appraisal serves the following purposes:
approaches.
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1. Assessing Incremental Contribution.
2. Considering Time Value of Money.  Ignores cash flows beyond the payback point, leading to rejection of potentially
3. Assessing Risks and Uncertainties. worthwhile projects
4. Establishing Viability.  Ignores the cost of capital used for financing the project
5. Providing Standardized Information.  Ignores the 'time value of money,' treating cash flows equally regardless of their
6. Assisting in Project Selection under Capital Rationing. timing in the project's life.
7. Predicting Specific Outcomes.
8. Evaluating Desirability. 2. Average Rate of Return / Accounting Rate of Return (ARR):
9. Predicting Project Success or Failure. The accounting rate of return (ARR) is a formula that calculates the percentage
10. Using Existing Norms. rate of return on an investment or asset compared to its initial cost. It is
11. Verifying Hypotheses. calculated by dividing the average annual profit after depreciation by the initial
Investment Appraisal Techniques include: investment. ARR does not consider the time value of money or cash flows, making
it simple but limited in its evaluation.
1. Payback Period
2. Accounting Rate of Return / Average Rate of Return (ARR) Calculation of ARR:
3. Time Value of Money
4. Net Present Value (NPV) Calculate the annual net profit from the investment, considering revenue and
5. Internal Rate of Return (IRR) costs.
6. Profitability Index If it's a fixed asset like PP&E, subtract depreciation expense from annual revenue
These techniques help evaluate the financial aspects of investments and assist to get net profit.
decision-makers. In the public sector, broader criteria like social cost-benefit Divide the annual net profit by the initial cost of the asset and multiply the result
analysis may be considered. by 100 to get the percentage ARR.
Example 1:
1. Payback Period: Initial Investment: $250,000
The payback period is the time required to recover the initial investment and start Expected Annual Revenue: $70,000
generating positive cash flow for a project. It is calculated as follows: Time Frame: 5 years
Payback period = Investment / Annual cash savings ARR = 28%

Example: Example 2:
For the projects shown in the table: Initial Investment: $130,000
Project 1: Payback period = 3 years Annual Cash Inflow: $32,000
Project 2: Payback period = 3 years Useful Life: 6 years
Project 3: Payback period = 4 years ARR = 9.3%

Advantages of Payback: Example 3:

Initial Investment: $350,000
 Simple calculation Annual Revenue Increase: $100,000
 Emphasizes speed of return, important for liquidity or risk concerns Annual Expense Increase: $10,000
 Avoids forecasting cash flows beyond the payback point, reducing uncertainty Useful Life: 20 years
 Uses project cash flows for more objective evaluation ARR = 20.71%
 Favors quick return projects, promoting growth and liquidity
 Minimizes time-related risks for the company Disadvantages of ARR:
Disadvantages of Payback:
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1. Ignores the timing of cash flows.  Marketing Efforts: Effective marketing strategies enhance ROI.
2. Uses accounting profit, which can be subjective and may not be suitable for  Govt. Taxes and Subsidies: Taxation and subsidies impact consumption and ROI.
investment appraisal.  Technology and Innovation: R&D investment lowers costs and yields superior
3. Lacks a universally accepted method for calculation. products.
 Income per Capita: Population income level affects product uptake and ROI.
Time Value of Money:  Politics and Security: Stable political climates positively influence ROI.
The time value of money refers to the principle that money received today is  Demographics: Population composition and indicators affect ROI.
more valuable than the same amount received in the future due to preferences  Climate: Relevant for agriculture and transportation projects.
for present consumption and inflation. To compare net benefits in terms of their  Management Decisions: Finances, HR, risk management, and legal aspects impact
present value, discounting is used, which reduces future costs or revenues to their ROI.
real value at present. This concept is vital in investment appraisal, particularly in
the Net Present Value (NPV) and Internal Rate of Return (IRR) techniques. Financing & Contracting in Projects:

Cash flow items in investment appraisal include cash inflows (project revenues, Evaluate funding options during project appraisal.
grants, etc.) and cash outflows (initial investment, project costs, etc.). The NPV Large projects may require loans, small ones financed from reserves.
calculates the present values of expected cash inflows and outflows to determine Consider funding sources alongside contracting routes.
the acceptability of a project, while the formula for NPV is: Government projects may have specific funding & contracting requirements.
NPV = Σ(Rt / (1 + i)^t) Possible sources of funds: cash reserves, asset sales, mortgages, bank loans,
leasing, debentures, share capital, joint ventures, government tax revenue,
The Internal Rate of Return (IRR) is the discount rate that yields zero NPV and can grants, and export credit guarantee schemes.
be found by drawing a present value profile or by calculations involving linear 3.5.2 Contracting Options in Projects
interpolations. Traditional Client Coordinated Contracting:

Both NPV and IRR assume certain conditions, including no uncertainty, no The traditional client coordinated approach is a long-standing contracting method
inflation, a known discount rate, and a perfect capital market. However, these used by governments in open-market economies. Here, the client handles project
assumptions may not always hold true in real-world scenarios. design through a consulting engineer or architect, while the main contractor
focuses on construction based on the provided design.
While the IRR and NPV may give the same accept or reject decisions for projects Projects may be divided into separate packages, each assigned to different
with conventional cash flows, NPV is generally considered more technically contractors, with the client responsible for coordinating these contracts.
superior. The choice of discounting rate for a project depends on management
judgment, prevailing interest rates, return on capital, and advice from financial Advantages:
experts.
Independent Professional Design: The employer benefits from expertise in design
In conclusion, understanding the time value of money is crucial for making and supervision.
informed investment decisions, as it allows for a meaningful comparison of cash Competitive Pricing: Separate work packages enable competitive pricing for
flows occurring over different periods. project components.
Factors Affecting Project Returns on Investment: Client Control: The client retains control, accommodating changes within
Several factors influence ROI, including: contractual procedures.
Disadvantages:
 Economies of Scale: Larger scale production lowers unit costs, increasing sales
volume and revenue.  Lack of Design Competition: Internal design may lack competition.
 Production Costs: Differences in labor, technology, and input costs affect ROI.  Incomplete Design at Tender: Specialist subcontractor inputs may be missing at
 Product Price: End product price impacts sales volume, revenue, and profit. tender stage.
10
 Absence of Construction 'Know-How': Contractor expertise may not be
incorporated.
In partial turnkey contracting, the allocation of work between the employer,
 Potential Adversarial Relations: Traditional contracts may lead to adversarial
consultants, and turnkey contractor is less rigid, allowing for variations to
situations.
accommodate the parties' preferences. The employer may take on certain tasks
 Lack of Contractor Ownership: Contractors may lack ownership and concern for
directly or through other contractors or consultants, independently of the turnkey
client requirements.
contractor. This increases the employer's responsibility for the designated work and its
 Discontinuity in Supply Chain: Fragmented approach can disrupt the supply chain.
coordination, while the turnkey contractor retains responsibility for their designated
 Increased Delays and Claims: Communication hurdles may lead to delays and
tasks.
claims.
Full Turnkey Contracting:
Advantages:
In full turnkey contracting, the contractor assumes complete responsibility for the
project, encompassing design, engineering, procurement, construction,  Similar Benefits as Total Turnkey: The turnkey contractor's tasks enjoy the same
commissioning, testing, and staff training. The client's role is limited to defining advantages as in full turnkey contracts.
their requirements, providing the site, monitoring progress, making payments,  Flexibility in Ancillary Works: The employer can separately contract for ancillary
and accepting the project after guarantee tests. The turnkey contractor holds sole works, providing opportunities for involving local firms.
responsibility for project execution without client interference or approval. Prime Disadvantage:
contracting is a variant of turnkey where the prime contractor handles the entire  Temptation for Ancillary Work: The employer must avoid taking on ancillary work
supply chain and assumes responsibility throughout the project's life, including that is crucial for the proper functioning of the turnkey contractor's designated
facilities management. tasks.

Advantages: Management Contracting:

 Maximum Responsibility: One organization bears full project responsibility, Management contracting is a project management approach where the employer
reducing the need for client resources or external consultants. appoints a single contractor to oversee and manage the entire project, while the
 Faster Project Completion: Turnkey approach aims for swift project delivery. contractor does not carry out any physical construction work. Instead, the
 Encourages Innovation: Competitive tendering of design promotes innovation and management contractor coordinates and manages the project on behalf of the
cost efficiencies. employer, working closely with design and other consultants who are directly
 Synchronized Design and Construction: Economies achieved by aligning design, appointed by and responsible to the employer.
procurement, and construction, minimizing delays and inefficiencies.
 Minimal Claims: Turnkey contractor handles claims arising from sub-contractors' Advantages:
delays or performance issues.
Disadvantages:  Time Savings: Compared to the traditional client-coordinated method,
management contracting can lead to time savings without committing to a
 Limited Correction Opportunities: Limited flexibility for the client to rectify turnkey contractor.
decisions after selecting the turnkey contractor.  Cost Savings: With construction management, cost savings may be achieved due
 Limited Competition: Fewer firms may compete for the work. to the construction manager's strong commercial approach in engaging and
 Higher Contract Price: Pricing reflects the risks, resources, and reduced controlling the works contractors.
competition the turnkey contractor faces. Disadvantages:
 Commercial Influence: Detailed design may prioritize commercial factors over
safety or long-term considerations.  Risk of Claims: The employer assumes the risk of claims from one contractor due
to the default of any others, similar to the traditional client-coordinated method.
Partial Turnkey Contracting:
11
 Uncertain Out-Turn Costs: The employer may not know the project's final costs
from the start, although they expect the management contractor's budget to be Calculation for Supplier A:
reasonably accurate.
1. Private Finance Initiative Schemes (PFIs)/ Public-Private Partnerships: Deposit: Kshs 1,500,000 (occurs immediately)
Monthly Instalments: Kshs 100,000 for 24 months
 PFIs are a way for the public sector to finance large public works projects through Discount rate: Assume a suitable discount rate (e.g., 10%)
the private sector, shifting the burden of raising capital from governments and Using the formula for present value of an ordinary annuity:
taxpayers. Private firms are repaid over the long term.
 In PFIs, the service provider is involved in financing, design, construction, PV = CF * [(1 - (1 + r)^(-n)) / r]
operation, and maintenance of the works over the contract period. They charge
fees to recoup total costs and a reasonable profit. Where PV is the present value, CF is the cash flow per period, r is the discount
 PFIs are similar to BOOT (build, own, operate, and transfer) schemes, where a rate, and n is the number of periods.
concessionaire finances, constructs, owns, and operates a facility for a concession
period and then transfers it back to the granting authority. PV for Supplier A:
 Public-Private Partnerships (PPPs) are a component of PFIs where the government PV = 1,500,000 + (100,000 * [(1 - (1 + 0.10)^(-24)) / 0.10])
and private sector entities collaborate to provide public infrastructure and PV = 1,500,000 + (100,000 * [(1 - 0.0813) / 0.10])
services for mutual gain. They involve sharing investments, responsibilities, risks, PV = 1,500,000 + (100,000 * 9.1887)
and rewards between partners. PV ≈ 2,419,870
Force Account:
Calculation for Supplier B:
 Force Account refers to construction carried out by the procuring entity itself or
public/semi-public agencies using their personnel and equipment or hired labor. Deposit: Kshs 2,000,000 (occurs immediately)
 It is used when the work involved is small, scattered, or in remote locations where Monthly Instalments: Kshs 80,000 for 24 months
qualified construction firms are unlikely to tender at a reasonable price, or for Discount rate: Assume the same discount rate (e.g., 10%)
unforeseen and urgent work without disrupting ongoing operations. PV for Supplier B:
 The use of Force Account as a procurement method is governed by regulations, PV = 2,000,000 + (80,000 * [(1 - (1 + 0.10)^(-24)) / 0.10])
and it requires written permission from the Accounting Officer. PV = 2,000,000 + (80,000 * [(1 - 0.0813) / 0.10])
 Advantages include expedited completion of abandoned projects, utilization of PV = 2,000,000 + (80,000 * 9.1887)
existing resources, tapping into the experience of staff, and implementation of PV ≈ 2,655,096
projects in remote areas.
 Disadvantages include lack of competition, potential wastage by government Conclusion:
staff, poor supervision, inflated project costs for kickbacks, different quality
compared to private contractors, political interference, and inadequate provisions Based on the time value of money analysis, Supplier A's offer has a lower present
for risk management. value (Kshs 2,419,870) compared to Supplier B's offer (Kshs 2,655,096). Therefore,
the Governor should advise the County Government of Vihiga to purchase the
QUESTIONS AND ANSWERS maize milling and packaging plant from Supplier A as it is the more cost-effective
Advising the Governor on Plant Purchase based on Time Value of Money: option.
To make a sound decision on which maize milling and packaging plant to
purchase, we need to consider the time value of money. The time value of money (Note: The actual choice of the discount rate can vary depending on the prevailing
is the principle that money available today is worth more than the same amount interest rates and the level of risk associated with the project.)
in the future due to inflation and the opportunity cost of not investing the money.
To assess the options, we can calculate the present value of the cash flows for CHAPTER 4: PROJECT PLANNING AND SCHEDULING
each supplier and choose the one with the lower present value.
12
 4.1 Introduction  Boosts project performance and success rates.
 Saves money by avoiding project failure and unnecessary expenses.
Project planning and scheduling are essential components of effective project  Improves resource allocation and utilization.
management. Proper planning ensures that projects are well-organized, resources  Enhances communication and collaboration.
are efficiently utilized, and goals are achieved within the specified time frame.  Increases stakeholder confidence and support.
Scheduling establishes a timeline for project activities, enabling project managers Elements of a project plan
to track progress and identify potential delays. 1. Project Objectives: Clear statements of project goals.

Title: Project Planning - Importance and Benefits 2. Project Scope: Description of work and deliverables.

I. Introduction 3. Work Breakdown Structure (WBS): Task breakdown.

Planning process: determining short-, medium-, and long-term goals and 4. Project Schedule: Timeline and milestones.
objectives.
Levels of planning: strategic/corporate, business/divisional, and 5. Resource Allocation: Assigning resources.
operational/functional.
Conceptualization, formulation, and investment appraisal precede detailed 6. Budget: Cost estimation and allocation.
implementation planning.
II. What is Project Planning? 7. Risk Management: Identifying and mitigating risks.

Definition: identifying, prioritizing, and delegating tasks and resources for project 8. Quality Management: Ensuring project quality.
completion.
Components of a project plan: 9. Communication Plan: Effective team communication.
 Project Scope
 Project Schedule 10. Stakeholder Management: Managing stakeholders.
 Resource Requirement
 Project Cost Estimation 11. Change Management: Handling scope changes.
 Project Quality
12. Procurement Plan: External resources strategy.
 Project Risk Management
Project planning translates requirements into Work Breakdown Structure (WBS), 13. Contingency Plan: Handling unexpected events.
Gantt charts, etc.
IWhy Do We Need Project Planning? 14. Monitoring and Control: Tracking progress and adjustments.
 Project planning reduces risk and uncertainty by anticipating occurrences.
 It boosts project performance and success rates by avoiding common pitfalls. 15. Project Closeout: Concluding the project.
 Proper planning saves money by eliminating unnecessary expenses.
 It improves team communication and collaboration for smooth execution. Project Structures:
 Resource planning ensures optimal resource use for cost-effectiveness.
 Tracking project goals is facilitated, aiding adjustments as needed. Project Structure Overview: Provides the development framework for the project.
 Collaborators stay aligned and informed through the project plan.
 Employee involvement in planning improves retention and engagement. Types of Project Structures:
a) Work Breakdown Structure (WBS): Divides a complex project into manageable
Advantages of detailed planning: tasks.
13
 b) Product Breakdown Structure (PBS): Hierarchical breakdown of project  Identifies critical path of sequential activities with longest duration.
deliverables.  Arrowed lines represent activities with milestones.
c) Resource Breakdown Structure (RBS): Lays out resources needed for each task.  Determines earliest project completion time.
PERT (Program Evaluation and Review Technique) (4.3.4):
Work Breakdown Structure (WBS):
 Calculates activity times with three estimates (shortest, longest, most likely).
1. Breaks down large projects for efficient completion.  Expected time is a weighted average of estimates.
2. Assess project scope, prioritize tasks, and assign responsibilities.  Allows for better uncertainty management compared to CPM.
3. Characteristics: Deliverable-oriented, hierarchical decomposition. Schedule Compression:
4. Examples: WBS spreadsheet, flowchart, list, Gantt chart.
Product Breakdown Structure (PBS):  Shortens schedule through crashing (using more resources) or fast-tracking
(parallel activities).
1. Hierarchical structure of project deliverables or outcomes.  Risk multipliers add time/resource contingency for high-risk tasks.
2. Serves as a project "shopping list" and defines product components. Resource Tools and Techniques:
3. Differentiates between internal and external products.
4. Supported by a product log and descriptions for clear understanding. 1. Levelling: Adjusts activities to minimize resource peaks and troughs.
Resource Breakdown Structure (RBS): 2. Critical Chain Method: Plans activities based on latest start and finish dates for
better resource utilization.
1. Identifies resources required for tasks in the project plan or WBS. 3. Resource Histograms: Column chart depicting resource usage over time.
2. Includes people, time, intangible, and tangible assets. Note: These tools and techniques help project managers efficiently plan,
3. Assists in resource planning, organization, and tracking during project execution. execute, and control project schedules, ensuring successful project completion.
Note: Each project may utilize different combinations of these structures based
on its complexity and requirements. These structures aid in effective project Resources in Project Management:
management, resource allocation, and successful project completion.
4.4.1 What is a Resource in Project Management?
Planning, Sequencing, and Scheduling Tools:
 A necessary asset to carry out tasks or projects.
Overview: Project managers use various digital tools for planning, monitoring, and  Resources can be people, teams, tools, finances, and time.
controlling project schedules.  Assessment and allocation of resources before project commencement are
essential.
Gantt Chart (4.3.1):  Poor resource planning can lead to mid-project resource shortages and
missed deadlines.
Horizontal bar chart plotting activities over time. 4.4.2 The Theory of Constraints in Project Resource Management:
 Bars represent tasks with lengths based on time estimates.
 Sequential or parallel bars based on task dependencies. The Theory of Constraints helps identify crucial limiting factors or bottlenecks.
 Used for plan vs. actual time comparison. Goal: Address the constraint to no longer be a limiting factor.
Schedule Network Analysis (4.3.2): Key objectives: Reduce operating expenses, inventory, and increase throughput.
Five implementation steps:
 Graphical display of logical interrelationships between work elements. 1. Identify the constraint: Identify the limiting factor (physical or managerial
 Shows project progression from planning to closure. weakness).
 Used to track project progress and ensure it stays on track. 2. Decide how to leverage the constraint: Plan processes to optimize constraint
Critical Path Method (CPM) (4.3.3): utilization.

14
3. Subordinate activities: Reorganize tasks to match the constraint's maximum  Replenishable (e.g., materials),
throughput.  Reusable (remain available after use).
4. Elevate the constraint: Increase the constraint's capacity (e.g., new equipment,
hiring). Resource Loading: Fills team members' available time with assignments
5. Repeat for continuous improvement: Address new constraints as they arise. throughout a workweek.
Note: Effective resource management and addressing constraints lead to Resource Leveling: Helps teams accommodate constraints and predict project
efficient project execution and achievement of project goals. timelines.
Difference: Resource loading maximizes workforce capacity, while resource
Theory of Constraints in Project Management – Critical Chain Project leveling prioritizes timelines and budgets.
Management (CCPM): Approaches for Resource Leveling:
Postponing project start/end dates, obtaining additional resources, using network
 The theory of constraints is used to improve project management techniques. analysis, and applying techniques like critical path method and critical chain
 Critical Chain Project Management (CCPM) is a method devised to address project method.
performance issues.
 CCPM identifies the critical link, the longest delivery path considering estimated
activities and material availability. Multi-Project Resource Scheduling:
 CCPM offers different task duration estimates and reallocates safety time as
buffers. Multi-project management: Project managers lead several projects
 Buffer management is used to monitor project progress and take corrective simultaneously for efficient resource planning.
actions if necessary. Challenges of multi-project scheduling:
 Buffers are divided into green, yellow, and red zones to indicate project status.  Overlaps in project schedules,
4.4.2.2 Theory of Constraints Benefits:  Lack of consolidated view,
 Over-allocation,
 Emphasizes continuous improvement in the system.  Unclear priorities,
 Results in enhanced production,  Limited resources.
 increased profits, Tips for effective resource utilization:
 reduced delivery times.  Avoid overlaps,
 Improves product flow  Plan for peak demand,
 reduces inventory and work in progress.  Use workload scheduling tools,
 Use common planning tools,
Note: Critical Chain Project Management, based on the Theory of Constraints,  Get a consolidated view,
helps enhance project management efficiency and achieve better project  Separate project and resource planning processes,
outcomes  Use multi-project planning software.
Human Resources: Reusable resources critical for project success, involve seven
logical steps for practical human resource scheduling.
3 Resource Planning and Scheduling: Information Technology Systems: Computers and technology used for project
management, processing, presentation, and communication of management
Project resources: Include people, objects, tools, machines, and money required information.
for the project. Financial Resources: Cash flow forecasting and management crucial for project
Resource scheduling: Efficiently assigns resources to tasks based on availability. success, cash flow schedule helps keep projects financially viable.
Asset Finance: Commercial banks provide asset finance for movable assets
Categories of resources: needed in projects, consideration of cash flow needed for asset acquisition.
 Exhaustible (cannot be replenished),
15
 Role of Development Partners: International and regional development finance IN PROJECTS
institutions provide funding and technical assistance for projects, projects seeking
funding must present compelling business case and proper design. 5.1 Introduction
5.2 Cost Estimation
Practice Questions Answers: 5.3 Cost Control Techniques
5.4 Pricing Mechanism in Project Management
1. Scheduling in project management involves assigning resources to tasks and 5.5 Activity Budgeting/ Work Element Costing
determining start and end dates for each task, while planning refers to the 5.6 Controlling Variations/ Variance Analysis
process of defining project objectives, scope, and deliverables. 5.7 Life Cycle Costing (LCC) in Project Management
5.8 Transparency and Mutual Trust Approaches
2. The essential elements of a project scope document include project objectives, 5.9 Measurement, Monitoring and Improvement
deliverables, constraints, assumptions, and acceptance criteria. 5.10 Activity Crashing
5.11 Project Investment Selection Criteria
3. Problems encountered in developing work breakdown structures for projects 5.12 Cost Escalation Clauses
may include unclear scope, overlapping tasks, missing tasks, and difficulty in
breaking down complex projects. Cost estimation
is a critical process in project management that involves predicting the expenses
4. Critical Path Method (CPM) focuses on determining the longest path of associated with a project? Reliable cost estimates are essential for various project
dependent tasks to calculate project duration, while Program Evaluation and management activities, such as financial appraisal, budgeting, resource allocation,
Review Technique (PERT) considers three time estimates for each task to account and cost control. A well-prepared cost estimate enables project managers to
for uncertainty. make informed decisions and ensures the project's financial viability.

5. Stakeholders play a significant role in project scope definition by providing input, Table 5.1 provides a typical summary layout of a project cost estimate, classifying
clarifying requirements, and ensuring alignment with project goals. cost elements for clear comparison and negotiation purposes. The classification
includes both direct (variable) costs and indirect (fixed) costs.
6. Categories of resources in a project include exhaustible (e.g., time), replenish able
(e.g., materials), and reusable (e.g., people, machinery). Direct (Variable) Costs:

7. Constraints to consider in loading human resources on a project include Direct Labour: Wages and salaries of people specifically employed on the project.
availability, skills, qualifications, and potential conflicts with other projects. Direct Materials: Costs of equipment, materials, and bought-out services used
specifically on the project.
8. Many project failures in the developing world are due to overambitious project Direct Expenses: Travel, accommodation, and other expenses chargeable
scope, insufficient planning, and lack of resources. specifically on the project.
Indirect (Fixed) Costs:
9. Key features of an ICT system for project resource scheduling include efficient
resource allocation, real-time tracking, reporting, and collaboration tools. Overhead Costs: Costs of running the business, including general management
and accommodation expenses.
10. Scope changes (variations) in a construction project can lead to cost overruns, Below the Line Items:
schedule delays, and disputes with stakeholders. Proper change management is 3. Contingency Costs: An additional amount, typically calculated as a small
crucial to handle variations effectively. percentage of the above-the-line cost, to compensate for estimation errors,
omissions, unfunded project changes, and other unexpected costs.

CHAPTER 5: COST MANAGEMENT AND CONTROL TECHNIQUES

16
Escalation: An addition to allow for costs that may increase over time due to
annual cost inflation, especially in long-duration projects when the national c. Feasibility Estimates: Feasibility estimates are derived after a significant
inflation rate is high. amount of preliminary project design has been carried out. The accuracy
Mark-up for Profit: These two items apply only to projects sold to external clients confidence factor for feasibility estimates is better, usually around +/- 10 percent.
and represent management decisions to add a profit margin to the project cost. These estimates are commonly used in construction tenders.
Selling Price: The final price quoted to the client for the project.
It's important to note that the exact values for the cost elements can only be d. Definitive Estimates: Definitive estimates cannot be made until most work has
determined when the detailed design and bill of quantities are prepared. been completed, significant purchase orders have been placed at known prices,
However, early cost estimates are frequently required to aid decision-making and the project is well advanced or nearing completion. These estimates are more
before project authorization. accurate, with a confidence level of around +/- 5% or better. They are usually
updated regularly during the project's cost reporting and control procedure.
Cost estimation accuracy can vary, and there are four levels of estimating
accuracy: The accuracy of estimates improves as the project progresses from ballpark to
definitive estimates. Definitive estimates are the most accurate and are used as
Order of Magnitude: Rough, high-level estimate with a wide range of accuracy the basis for pricing decisions, budgeting, financial planning, project authorization
(+/- 50%). decisions, and tender evaluation.
Budgetary: A more detailed estimate based on limited information (+/- 30%).
Definitive: A thorough estimate based on well-defined project requirements (+/-
10%). Cost control Techniques
Control: An estimate used for cost control purposes during project execution (+/- Is a crucial aspect of project management to ensure that the project stays within
5%). the planned budget and delivers the expected outcomes? Here are some valuable
In summary, cost estimation is an essential aspect of project management that and essential techniques used for efficient project cost control:
helps stakeholders understand and plan for project costs. Properly classified cost
elements provide transparency and facilitate effective negotiation and decision-  Planning the project budget: Creating a detailed budget at the beginning of the
making during the project initiation phase. project is essential. The budget should include all estimated costs and payments
that will be incurred during the project's life cycle. It requires thorough research
The classification of estimates and critical thinking. Leave room for adjustments, as costs may change during the
According to the degree of confidence in their ultimate accuracy is crucial in
project.
project cost management. Different levels of estimates are used based on the
available information, time constraints, and the quality of data. Here are the main
classifications of estimates:  Keeping track of costs: Maintain a time-based budget and track actual costs
against periodic targets. This allows you to monitor the project's financial
a. Ballpark Estimate: These estimates are made when only vague outline progress and make adjustments as needed. Any additional work or changes
information exists, and many aspects of the project are yet to be decided. They should be estimated and assessed for their impact on the budget.
are often used in emergencies when there is little time for detailed estimation.
Ballpark estimates provide rough preliminary resource requirements but should  Effective time management: Efficiently managing time is vital for cost control.
not be used for fixed-price tendering due to their low level of accuracy. Delays in project completion can lead to increased costs. Remind the team of
important deadlines to ensure work is completed on time.
b. Comparative Estimates: This type of estimate is based on comparing the work
required for an upcoming project with similar work done on previous projects.
They can be attempted before detailed design work when reliable materials or  Project change control: Implement a change control system to handle any
work schedules are not available. Comparative estimates are commonly used as potential changes during the project. Changes to the project scope can impact
the basis for tenders in manufacturing and engineering projects. deadlines and costs, so they must be carefully managed.

17
  Total price is predetermined before the project begins.
 Use of earned value: The earned value technique is helpful, especially in larger  Payments may be made in installments related to milestones up to a
projects, to determine the value of completed work. It enables quick adjustments predetermined limit.
that are essential for project success.  Long-term lump sum contracts may have provisions for variations and claims
during the project.
 Ideal from the purchaser's perspective as it establishes the commitment in
 Understand the main elements of project costs: Having a thorough advance and reduces administrative work.
understanding of the various cost elements involved in the project is crucial for
effective cost control. Activity Schedule Pricing (Schedule of Rates) or Premeasurement Contract:
 A bill of quantities is prepared by the employer, and the contractor is paid based
5.4 Pricing Mechanisms in Project Management: on actual measurements of work done.
 Commonly used in construction projects where the final scope of the project is
In project management, pricing mechanisms describe how buyers and sellers are not entirely predictable.
matched through price. There are three main pricing mechanisms:
Target Cost (Cost Reimbursable) Contracts:
Lump Sum: A lump sum contract has a fixed price agreed upon at the beginning of  No fixed price; the customer agrees to repay the contractor based on prearranged
the project. The contractor is responsible for completing the project within the scales of charges.
agreed-upon budget. This pricing mechanism is suitable for projects with a well-  Suitable when the final project scope cannot be predicted accurately or when
defined scope and little uncertainty. high risks are involved.
 Various incentive forms of contracts are used to combine cost reimbursement
Schedule of Rates or Bill of Approximate Quantities: This mechanism involves with cost discipline and efficiency incentives.
pricing based on predefined rates or quantities for various items of work. The final
Risk/Reward Pricing:
cost is calculated based on the actual quantities used during the project. It allows
for more flexibility as the project progresses.  A flat rate pricing structure where additional payments depend on specific end
results.
Cost Reimbursement: Cost reimbursement contracts involve the buyer  Encourages service providers to develop new ideas and share financial risks with
reimbursing the contractor for all allowable costs incurred during the project, customers.
along with an agreed-upon fee or profit margin. This pricing mechanism is  Often incorporated in target cost contracts.
common in projects with high uncertainty and complexity.
Timing of Payments:
The choice of pricing mechanism depends on various factors such as:  In fixed-price contracts, stage payments are often agreed upon to support the
 The type of project, contractor's cash flow.
 Accuracy of cost estimates,  Payments may be tied to specific milestones or stages in the project, or based on
 Duration of the project, actual work progress.
 Experience of the parties involved, Activity-Based Budgeting (ABB):
 And prevailing economic conditions.
 Activity-based budgeting (ABB) is a method of budgeting that involves a thorough
In reality, many projects may use a combination of pricing mechanisms based on analysis of activities to predict costs. Unlike traditional budgeting processes that
different aspects of the work. Effective cost control and choosing the appropriate rely on historical costs, ABB focuses on scrutinizing every activity that incurs a cost
pricing mechanism are essential for successful project delivery. within an organization to identify potential efficiencies. By doing so, budgets are
developed based on the results of this analysis. ABB is more rigorous compared to
traditional budgeting methods, which often involve adjusting previous budgets to
Fixed Lump Sum Contract: account for inflation or business development.
18
 Is a crucial process in determining the costs associated with inventory items? It
involves two main aspects: material costing for initial inventory acquisition and
The key points about Activity-Based Budgeting (ABB) are:
material costing for subsequent valuation.

Purpose: The main goal of ABB is to analyze business cost drivers and identify
a. Material Costing for Initial Inventory Acquisition:
opportunities to create efficiencies and reduce costs. It can involve reducing activity
levels or eliminating unnecessary activities to increase profitability. When a company acquires materials for its inventory, it must decide how to record
these items' costs. The basic options are to record the items at their purchased prices
or to include additional costs such as freight, sales taxes, and customs duties. These
Process: ABB involves three steps: additional costs are allowable but may require additional work. Alternatively, these
costs can be charged to expense as incurred, immediately affecting the cost of goods
 Identifying relevant activities: These are the cost drivers responsible for
sold.
generating revenue or incurring expenses.
 Determining the number of units related to each activity: This serves as the
baseline for cost calculations. Overhead costs are generally not allocated to raw materials because they have not
 Calculating the cost per unit of activity and multiplying it by the activity level to undergone any production activities associated with overhead. Overhead costs are
determine the total cost. allocated to work-in-process and finished goods inventory, where production activities
have occurred.

Example: In the example provided, Company A anticipates receiving 50,000 sales

orders in the upcoming year, with each order costing $2 to process. Therefore, the b. Material Costing for Subsequent Valuation:
activity-based budget for processing sales orders is $100,000 ($50,000 * $2). This After inventory items have been acquired and recorded in stock, they are subject to
differs from traditional budgeting, which may simply adjust previous expenses without the lower of cost or market (LCM) rule. This rule dictates that inventory should be
the detailed analysis. valued at the lower of its recorded cost or the market rate. In practice, this rule is
usually applied to high-value inventory items as its application to low-value items may
not result in significant changes.
Advantages: ABB provides a comprehensive understanding of associated costs for
each operational activity, allowing for a better evaluation of different business units
and efficient allocation of capital. Cost layering is another important concept applied to inventory valuation. It
Disadvantages: Implementing ABB can be costlier and time-consuming compared to determines the order in which inventory items are charged to the cost of goods sold
other budgeting methods. Accountants handling ABB need a deep understanding of when they are sold to customers. Several cost layering methods can be used:
the business processes, and technical details must be accurately recorded. Overall, the
text provides insights into different contract types and budgeting approaches used in
project management and procurement processes. It highlights the importance of 1. Specific Identification Method: Costs are assigned to specific units of inventory,
choosing the most suitable contract type and payment timing based on the project's and these costs are charged to expense when the specific units are sold. This
nature and requirements. method is often used for expensive and unique inventory items.

Material costing 2. First in, First Out Method (FIFO): Costs are assigned based on the assumption
that the earliest goods acquired are the first ones sold. In an increasing price
environment, this method tends to result in higher profits.

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3. Last in, First Out Method (LIFO): Costs are assigned based on the assumption that
the last goods acquired are the first ones sold. In an increasing price environment,
Labour Productivity:
this method tends to result in lower profits. However, LIFO is not allowed under
international financial reporting standards. Labour productivity = Output / Actual hours worked
4. Weighted Average Method: Costs are calculated as an average of the costs of all
units in stock when charging costs to the cost of goods sold.
Labour Costing per Unit:
Labour Costing
Labour cost per unit = Direct wages / No. of units
Labour costing is the process of calculating the cost of labour for a product or service.
It
is a crucial part of business operations and can significantly impact profitability? Time Rate Method:

Labour Earnings = Hours worked x Rate per hour

costs are typically broken down into direct and indirect costs. Different methods, E = HW x RH

techniques, and formulas are used to calculate labour costs

here are the formulas for the different methods mentioned in the context of labor Piece Rate Methods:
costing:

a. Straight Rate Method:

Measurement of Labour Turnover: Earnings = Output x Rate per unit
a. Separation Method: E = Output x RH
Labour turnover = (No. of separations in a period / Average no. of workers) x 100
LT = (NS / ANW) x 100 b. Differential Piece Rate System:
Earnings = Output x Rate per unit
b. Replacement Method: E = Output x RH
Labour turnover = (No. of replacements in a period / Average no. of workers) x 100
LT = (NR / ANW) x 100 c. F.W. Taylor’s System:
Earnings = 80% of price rate when below standard
c. Flux Method: Earnings = 120% of price rate when at or above standard
Labour turnover = ((No. of separations + No. of replacements) / Average no. of
workers) x 100
d. Gantt Task Bonus Plan:
LT = ((NS + NR) / ANW) x 100
Output % Standard Payment
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Output below standard Guaranteed time rate Overhead costs
Output at standard 120% of time rate are an essential part of business operations, encompassing indirect expenses that
cannot be directly attributed to specific products, services, or cost centers. They play a
Output above standard 120% of ordinary piece rate
crucial role in the day-to-day functioning of a project or business. Overhead costs can
vary based on the level of production and can be classified into different types:
e. Merrick Differential Price Rate System:
Output % Standard Payment 1. Fixed Overheads: These expenses remain constant regardless of the level of
Up to 83% Ordinary piece rate production or output. They do not fluctuate within a certain limit and are not
influenced by managerial actions up to that limit. Examples of fixed overheads
83% to 100% 110% of ordinary piece rate include rent and depreciation.
Above 100% 120% of Ordinary Piece Rate

2. Variable Overheads: Variable overheads fluctuate in direct proportion to the

f. Halsey Premium Plan: output volume or level of business activity. They are directly impacted by changes
in production or business activity. Examples include shipping expenses and
Earnings = (Hours worked x Rate per hour) + (Time saved x Rate per hour x 50%) advertising costs.
E = (HW x RH) + (TS x RH x 50%)

3. Semi-Variable Overheads: Semi-variable overheads contain both fixed and

g. Halsey-Weir Plan: variable elements. They partially fluctuate with changes in output but also have a
fixed component that remains constant up to a certain limit. Examples include
Earnings = (Hours worked x Rate per hour) + (Time saved x Rate per hour x 30%)
telephone charges.
E = (HW x RH) + (TS x RH x 30%)

Overhead costs can also be classified based on their function within the business:
h. Rowan System:
1. Manufacturing Overheads: These overheads are incurred in the manufacturing
Earnings = Hours worked x Rate per hour + (Time saved / time allowed x Hours worked process of goods and services. They include indirect material, indirect labor, and
x Per hour rate) other expenses related to production.
2. Administrative Overheads: Administrative overheads are associated with
E = HW x RH + (TS / TA x HW x RH)
accounting and administrative services. They cannot be directly associated with
the per-unit cost of production.
3. Selling and Distribution Overheads: These overheads are incurred in marketing
i. Barth Variable Sharing Plan:
and distributing products. They include expenses related to transportation and
Earnings = rate per hour x √ (Standard hours x Hours worked) other selling activities.
E = RH x √ (SH x HW) 4. Research and Development Overheads: These overheads are incurred in the
process of researching and developing new products or processes. They cannot be
directly attributed to any specific product or service.

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Allocating overhead costs involves a two-step process: Variable Overhead Spending Variance = (Actual Variable Overhead - Standard
Variable Overhead per Unit) x Actual Output Quantity
Selection of Approximate Cost Center: Overhead costs are analyzed to determine the
appropriate cost center for allocation. This decision depends on factors such as the
level of control required and the available information.
 Fixed Overhead Spending Variance: This variance represents the total amount by
Determination: The second step involves the analysis to determine the overhead costs which fixed overhead costs exceed their total standard cost for the reporting
that can be assigned to each cost center. This process includes both cost allocation period.
and cost apportionment. Cost allocation assigns specific costs directly to a particular Formula:
cost center, while cost apportionment distributes costs among cost centers based on Fixed Overhead Spending Variance = Actual Fixed Overhead - Standard Fixed
estimated benefits received by each center. For example, if it is not feasible to allocate Overhead
electricity expenses to specific divisions in a service organization, cost apportionment  Material Yield Variance: It calculates the difference between the total standard
is used to distribute the costs among the divisions based on estimates. quantity of materials supposed to be used and the actual level of use, multiplied
by the standard price per unit.
Formula:
Variance analysis Material Yield Variance = (Standard Quantity - Actual Quantity) x Standard Price
Is a valuable tool used in project management and cost control to analyze the  Labour Efficiency Variance: This variance measures the difference between the
differences between planned (budgeted or standard) performance and actual standard quantity of labor expected to be consumed and the actual amount used,
performance? By identifying and understanding these variations, project managers multiplied by the standard labor rate per hour.
can take corrective actions and make informed decisions to keep the project on track. Formula:
Some commonly-derived variances used in variance analysis include: Labour Efficiency Variance = (Standard Hours - Actual Hours) x Standard Rate
 Variable Overhead Efficiency Variance: It determines the difference between the
budgeted units of activity on which the variable overhead is charged and the
 Purchase Price Variance: This variance measures the difference between the actual units of activity, multiplied by the standard variable overhead cost per unit.
actual price paid for materials used and the standard cost, multiplied by the Formula:
number of units used. It helps assess how well the project managed its material Variable Overhead Efficiency Variance = (Budgeted Activity - Actual Activity) x
procurement costs. Standard Variable Overhead per Unit
 Formula:
 Purchase Price Variance = (Actual Price - Standard Price) x Actual Quantity
Apart from these cost-related variances, there can also be engineering variances,
which refer to changes in an already approved engineering design used in construction
 Labour Rate Variance: This variance calculates the difference between the actual or manufacturing. These changes should be formally documented and authorized
price paid for direct labor and its standard cost, multiplied by the number of units through variation orders (change orders) to ensure proper control over project
used. It evaluates how efficiently labor costs were managed. changes and to seek permission for permanent design changes.
 Formula: Life Cycle Costing (LCC)
 Labour Rate Variance = (Actual Rate - Standard Rate) x Actual Hours
 Variable Overhead Spending Variance: It measures the difference between the Is a comprehensive method of economic evaluation used in project management to
actual variable overhead cost incurred and the standard variable overhead cost assess the costs and economic efficiency of a project over its entire life cycle. It
per unit, multiplied by the total unit quantity of output. involves considering all relevant costs incurred from the initial construction phase to
Formula: the end-of-life or disposal phase. By taking a holistic approach to cost analysis, LCC
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provides a more accurate and reliable insight into the long-term costs and savings 2. Green Building Certification: LCC credits are often included in green building
associated with a project, compared to traditional Return on Investment (ROI)-based certification schemes, promoting sustainable and environmentally friendly
calculations. projects.
3. Reliable Planning and Risk Reduction: LCC is an effective planning tool for long-
term projects, helping to avoid surprises and reduce financial risks by considering
To conduct an LCC in construction projects, several key elements need to be the entire life cycle costs.
considered:
By combining Life Cycle Costing with Life Cycle Assessment (LCA), project managers
 Structured Cost Analysis: Identify and analyze all cost sources that will influence can make informed decisions that not only optimize costs but also consider
the overall costs of the project. This involves examining costs related to environmental impacts, leading to more sustainable and economically efficient
construction, maintenance, operation, and disposal. projects.
 Identify Priority Areas: Once major expenditure sources are identified, prioritize
areas for improvement in the baseline design. This can help in making informed
decisions to optimize costs and improve efficiency. Value Engineering,
 Compare Design Alternatives: Compare the benefits and impacts of different
Also known as Value Analysis, is a systematic approach aimed at providing necessary
design alternatives to find the most cost-effective solution for the project.
functions in a project or product at the lowest cost possible. The primary focus of
value engineering is on maximizing the value delivered while minimizing costs, without
compromising functionality or quality.
To get the maximum value from the LCC analysis,
 It is essential to implement it early in the project's life cycle, ideally before major
decisions have been made. The steps involved in the value engineering process are as follows:
 Engaging the entire project team is crucial, especially when creating design
alternatives, to capture the full potential of the project.
 Additionally, the LCC should be treated as an ongoing process, with calculations 1. Gather Information: The value engineering process begins by collecting
repeated several times as the project progresses through its stages, ensuring comprehensive information about the product or project's lifecycle. This includes
accuracy and high-quality analysis. forecasting all expenses and processes related to manufacturing, selling, and
distributing the product. The data is analyzed and broken down into manageable
sets, and key processes or elements are prioritized.
The primary benefits of using Life Cycle Costing in project management include:

2. Think Creatively: In this stage, the value engineering team engages in creative
1. Long-term Value: LCC ensures that the project delivers the highest possible value brainstorming to come up with new and innovative ways to develop the product
over its life span, even if upfront costs are not significantly reduced. It enables or project. They explore different approaches, take calculated risks, and creatively
identifying and addressing design issues, leading to better durability, less apply existing processes in novel ways. This phase encourages free thinking
maintenance, lower operational spending, and potentially an increased lifespan without the fear of criticism.
for the building or asset.

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3. Evaluate Ideas: After generating various ideas, the team evaluates them based on
their advantages and disadvantages. Each idea is carefully assessed, and the team
 Managing supplier risk: With OBA, supplier fees are not fixed, and the costs are
considers which ones outweigh the others in terms of value and benefits.
dependent on actual or defined costs, which encourages sharing risks and
rewards.
 Beneficial in the public and private sectors: OBA can be applied to various types
4. Develop and Analyze: The best ideas are further analyzed in this step. The team
of projects, including public-private partnership contracts.
develops model plans, assesses the impacts of proposed changes, revises financial
 Informing commercial decision-making and negotiations: The transparency in
projections, and evaluates the overall feasibility of the modifications. Timelines,
costs helps in making informed decisions during contract negotiations.
deadlines, and break-even points are taken into consideration during this analysis.
 Avoiding fixed-price contracts becoming cost-plus due to variations: OBA enables
a clear assessment of costs and prevents excessive cost overruns.
5. Present Discoveries: The top ideas are presented to upper management or the  Minimizing surprises and safeguarding revenue and profit risks: The transparency
board for consideration. Multiple alternatives may be presented, allowing in cost data helps in minimizing unexpected financial risks.
decision-makers to compare and choose the most suitable option. The  Incentivizing sharing of risks and rewards: OBA encourages suppliers to share in
presentations highlight the benefits of each change and include revised timelines, cost savings or profits.
financial projections, and risks.  Highlighting poor performance and risks: By openly disclosing costs, OBA
identifies areas of concern and helps in early mitigation.
However, implementing OBA comes with some limitations, including:
6. Implement Changes: Once management approves the changes, value engineering
shifts from theory to action. New teams are formed to oversee the  The need for a cultural change in the organization to foster openness and
implementation, and value engineering team leads continue to monitor the transparency.
adjustments and ensure alignment with expectations.  It may require external skills such as independent auditors and can be time,
information, and resource-intensive.
 There is also the challenge of safeguarding sensitive data from competitors and
Value engineering aims to enhance the value of products or projects by making cost- clients.
effective changes. The process involves close collaboration with various stakeholders To implement OBA effectively, certain best practice protocols can be followed:
and emphasizes delivering value to the organization while meeting project objectives
and requirements  Clearly communicate pre-tender that all records will be open to scrutiny.
 Develop a clear cost assurance strategy early in the project.
Open Book Accounting (OBA)  Specify the format and level of detail required for cost disclosure.
Is an accounting method used in project management that promotes transparency  Pre-plan the level of resources required for OBA implementation.
and openness in contracts? It involves disclosing the costs and returns related to the  Train and upskill the commercial team for better cost management.
project without divulging private financial information. The main objective of OBA is to  Establish a common approach for applying open-book principles.
provide necessary functions in a project at the lowest cost while ensuring value for  Develop standard reports for presenting cost information.
money.  Reinforce audit rights and scrutiny that will be actively managed.
 Define upfront project costs that will be reimbursed or disallowed.
Some of the benefits of implementing OBA include:  Align cost systems and substantiation with contract requirements.
 Promoting and delivering value for money on contracts: OBA allows for a clear  Conduct joint contractual reviews and contract understanding pre-mobilization.
understanding of costs and helps in optimizing spending to achieve the best value.

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In addition to OBA, another crucial concept in project management is cost are crucial aspects of cost control in project management. To effectively manage costs
transparency. Cost transparency involves tracking and measuring the total cost and achieve cost objectives, project managers need to implement a closed-loop
required to provision and maintain products and services for the benefit of the control system, where progress is measured, monitored, and corrective actions are
enterprise. It aims to provide visibility into costs, volumes, and value to enable taken to improve project inputs and outcomes.
informed decision-making and cost control. The effective implementation of cost
Here's how the process of measurement, monitoring, and improvement works in
transparency is based on six pillars:
cost control:
Measurement: The first step is to measure the costs incurred against the work
 Cost Clarity: Clearly identifying the different products and services and their accomplished. This involves accurately recording all costs related to the project,
associated costs. including labor, materials, equipment, and overheads. Proper cost accounting ensures
 Cost Visibility: Ensuring that the costs are visible and accessible to relevant that all expenses are tracked and attributed correctly to specific project activities.
stakeholders.
Monitoring: Once costs are measured, the project manager needs to monitor the
 Cost Understanding: Understanding the relationships between costs and
work progress against the set targets. This involves comparing the actual progress with
value across the product and service portfolio.
the planned progress to identify any deviations or variances. Regular monitoring
 Cost Accountability: Holding responsible parties accountable for cost
allows project managers to stay informed about the project's financial status and
management.
identify potential issues early on.
 Cost Management: Actively managing costs and taking corrective actions to
achieve cost efficiency. Closed-Loop Feedback System: The closed-loop feedback system is a continuous
 Cost Optimization: Continuously striving to optimize costs while maintaining process that involves providing instructions, measuring progress, detecting deviations,
value. and taking corrective actions. If there are any discrepancies between planned and
actual costs, corrective feedback is applied to improve future inputs and outcomes.
Corrective Actions: When deviations or errors are detected, the project manager must
To achieve effective cost control in projects, a closed-loop feedback system is used,
take corrective actions to address the issues. These actions may include reevaluating
where progress is monitored, deviations from the plan are detected, and corrective
project plans, adjusting budgets, reallocating resources, or revising project schedules.
actions are applied. Cost control involves various methods, such as switching
The goal is to bring the project back on track and ensure cost objectives are met.
suppliers, competitive sourcing, using alternative materials, improving labor efficiency,
better time management, eliminating waste, ensuring quality assurance, and HSE The principle of Management by Objectives (MBO) is also relevant in effective project
compliance, as well as crashing a project to complete it faster. management. Setting quantifiable and measurable objectives is essential to track
progress and ensure that the project is moving in the right direction. Clear objectives
help align the efforts of project managers and team members and provide a basis for
In summary, Open Book Accounting and Cost Transparency are important concepts in evaluating performance.
project management that promote transparency, informed decision-making, and cost
In practice, several methods can be employed to control cost variances and improve
control. Implementing OBA requires a cultural shift and adherence to best practice
cost certainty in projects, as listed below:
protocols, while cost transparency relies on six pillars for effective implementation.
Cost control involves various techniques to monitor progress and make corrective a. Switching suppliers: Exploring different suppliers can lead to cost savings.
actions to achieve cost efficiency in projects. b. Competitive sourcing of supplies: Encouraging suppliers to compete for contracts
can drive down costs.
Measurement, Monitoring, and Improvement
c. Using alternative materials: Opting for cost-effective materials can reduce project
expenses.

25
d. Employing well-trained and experienced laborers: Skilled labor can improve
productivity and reduce costs.
5.10 Activity Crashing:
e. Changing time rates: Negotiating better time rates with laborers can lead to cost
savings. Activity crashing is a technique used in project management to shorten the
f. Modified design: Redesigning certain elements can lead to cost efficiencies. completion time of a project without significantly increasing costs. The main goal of
g. Working faster through better training: Improving worker efficiency can save time crashing is to accelerate the project's schedule to meet deadlines or avoid delays. This
and costs. can involve allocating additional resources, manpower, or making strategic changes to
h. Better cost accounting: Implementing robust cost accounting practices improves specific project activities.
cost tracking. 5.10.1 Common Reasons for Crashing a Project:
i. Using competitive sources of funding: Seeking competitive financing options can
reduce borrowing costs.  Project Schedule Delay: When a project is falling behind schedule and facing
j. Better inventory control: Efficient inventory management avoids unnecessary potential penalties or consequences due to delays, crashing can be used to
expenses. expedite the project's completion.
k. Reducing administrative paperwork by using ICT tools: Digitizing processes  Resource Availability: If additional resources become available, such as
reduces paperwork costs. manpower, equipment, or funding, they can be allocated to expedite specific
l. Reducing delays or better time management: Avoiding delays can prevent cost project tasks.
overruns.  Avoiding Future Delays: Crashing one project activity can prevent cascading delays
m. Eliminating waste: Implementing waste reduction measures reduces unnecessary and ensure the timely completion of other interconnected tasks.
expenses.  Time Bonuses: In some cases, completing a project ahead of schedule may result
n. Quality assurance and HSE compliance: Ensuring high-quality work reduces in financial bonuses or incentives, making crashing financially beneficial.
rework costs and ensures safety compliance.  Extra Manpower: Onboarding new hires or additional workforce can accelerate
o. Energy conservation: Implementing energy-saving measures reduces utility project progress.
expenses. 5.10.2 Project Crashing Steps:
p. Better site security to minimize theft and pilferage: Enhancing security measures
protects project assets. When considering crashing a project, the following steps should be followed:
q. Proper activity scheduling: Efficient scheduling minimizes downtime and 1. Re-Check the Critical Path: Identify the critical path, which represents the
maximizes productivity. sequence of activities with the longest duration and cannot be delayed without
r. Minimizing variations and claims: Managing variations and claims effectively affecting the project's overall duration.
prevents cost escalation.
s. Good workmanship: High-quality work reduces maintenance and repair costs.
t. Avoiding late payment: Timely payment to suppliers can avoid penalty costs. 2. Evaluate the Pros and Cons: Assess the benefits and drawbacks of crashing
u. Crashing a project: Accelerating critical activities to meet deadlines can prevent specific activities, considering additional costs and resource requirements.
cost overruns. 3. Pick the Most Cost-Effective Option: Determine the most cost-effective approach
to achieve the desired project acceleration.
4. Consider Fast-Tracking: Compare crashing with fast-tracking, where overlapping
By employing these methods and closely monitoring cost-related factors, project tasks are performed simultaneously, reducing the project duration.
managers can effectively control costs, improve cost certainty, and ensure successful 5. Update Project Timeline: After deciding to crash specific activities, update the
project outcomes. project timeline with the new completion dates and budget.

26
6. Execute the Plan: Allocate additional resources and manpower according to the 13. 10.Explain the concept of ‘management by exceptions’ as applied in cost
crashing plan to expedite the project activities. control.
14. 11.Outline the procedure of value engineering in a project.
5.11 Project Investment Selection Criteria:
15. 12.Discuss how you can minimize claims on a project
Cost control processes can provide valuable information for re-evaluating and
CHAPTER 6: PROJECT IMPLEMENTATION AND ORGANIZATION STRUCTURES
adjusting the project investment program. When unforeseen economic changes lead
to significant variances in material costs, changes in project scope or investment Notes on Organizational Structure in Project Management:
criteria may be considered.
 Organizational structure is crucial for achieving project objectives by properly
organizing people, communications, jobs, and resources.
 It determines the hierarchy, authority, and inter-relationships of project team
5.12 Cost Escalation Clauses:
members.
1. A cost escalation clause allows the contractor to pass on increased material costs  An effective organization has clear lines of authority, well-defined roles, and
to the owner, even if the contract was agreed upon at a lump-sum price or fosters motivation among staff.
guaranteed maximum price.  Adequate feedback paths facilitate cooperation, coordination, and reporting of
1. The escalation clause outlines specific materials subject to cost adjustments difficulties to executive management.
2. Baseline prices,  One-size-fits-all approach doesn't work; adaptability to the specific context is
3. Measurement criteria for changes in material prices, essential.
4. Threshold that triggers compensation adjustments.
Common organizational structures include functional, divisional, matrix, and team-
5. This clause shares the risk of cost increases between the owner and the
based (projectized) structures.
contractor, promoting cost certainty in long-term projects.
Functional Structure:
5.13 Practice Questions
 Groups employees into departments based on work specialization.
1. Discuss four types of cost estimates that can be used in financial planning of a
 Top-down decision-making with department managers reporting to upper
project
management.
2. Explain the difference between prime costs and tender sum.
 Challenges include lack of coordination between departments; need to foster
3. Explain why the final contract sum is typically higher than the initial contract
collaboration.
sums
4. for most long-term construction projects. Divisional Structure:
5. Explain how you can improve labour productivity in a project.
 Organizes employees around a common product or geographical location.
6. Discuss the measures you would consider to improve cost certainty in a
 Teams focused on specific markets or product lines.
contract
 Decentralized framework with centralized corporate management.
7. for constructing a sugar factory.
8. Why is it not advisable to apply the ‘average method’ in project inventory Matrix Structure:
costing?  Employees report to multiple managers, fostering company-wide interaction and
9. Explain the factors which influence the pricing mechanism to apply in a given faster project delivery.
contract.  Can create authority confusion and conflicts between managers.
10. Explain how the final contract price is determined in a lump-sum contract.
11. Distinguish between Contract Price Adjustment and Incentive Clauses as Team Structure (Projectized):
12. commonly applied in construction contracts.
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 Creates small teams focused on delivering one product or service. Cons: Resource duplication, limited team growth, need for strong communication.
 Teams have full control over the project, little formalization, and high flexibility. Project Management Office (PMO):
 Works well for global organizations and manufacturers.
 PMO is a centralized and coordinated management entity for projects.
Network Structure:
 Reports to the CEO and has the authority to prioritize projects and allocate
 Involves joining efforts of two or more organizations to deliver a product or resources.
service.  Provides support services, training, standardized rules, and procedures to
 Utilizes full-time employees and freelance specialists for agility and adaptation. projects.
 Lower formalization due to external partnerships.  Manages priority conflicts, analyzes project risks, and evaluates project managers.
Hierarchical Structure:  Acts as a communication link between project managers and promotes good
practices.
1. Hierarchical structure is the most common organizational structure type. Note: The content above covers the key points about different organizational
2. It follows a direct chain of command from senior management to general structures and the role of the PMO in project management.
employees. Features of an Organizational Structure:
3. Decision-making authority resides with the highest-level executive.
4. The structure streamlines business processes and offers clear career paths.  Hierarchy: Defines a clear line of authority and decision-making responsibilities.
5. It may reduce conflicts but can slow down decision-making and affect  Division of Labour: Assigns specific workloads and responsibilities to different
employee morale. roles.
Flat Organization Structure:  Span of Control: Specifies the number of employees managed by a supervisor or
manager.
 In a flat structure, there are few middle managers between employees and top  Position Type (Line vs. Staff): Distinguishes between roles directly involved in the
managers. product (line positions) and those supporting them (staff positions).
 It requires less supervision, increases employee involvement, and fosters trust.  Centralization: Describes the distribution of decision-making authority within the
 Suitable for small businesses and startups due to its simplicity. organization.
 Employees have direct access to top management, promoting open 
communication. Steps to Make a Project Organizational Chart:
 Comparative Summary of Organizational Structures:
1. Align Project with Organizational Strategy: Understand how the project goals align
Functional Structure: with the company's strategy.
2. Analyze Projects on an Organizational Level: Evaluate project volume and variety
Pros: Optimal resources, familiarity among team members, operational efficiency. to determine the appropriate organizational structure.
Cons: Missing specialized expertise, competing priorities, organizational silos. 3. Determine Roles and Responsibilities: Identify necessary roles and assess team
Matrix Structure: members' strengths.
4. Structure the Chart: Map out the workflow, reporting, and hierarchical roles to
Pros: People optimization, flexibility, project control. create the organizational chart.
Cons: Administrative costs, potential miscommunication, increased conflict. 5. Finalize the Organizational Chart: Develop the visual representation of the chart
Projectized Structure: and include team members' names and contact information.
6. Communicate: Share the organizational chart with all team members to reduce
Pros: Project manager authority, clear alignment and control. confusion and ensure everyone understands their roles and responsibilities.
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Note: The content above covers the key features of an organizational structure and 5. Adjourning Stage: This stage involves disengaging from the team and terminating
the steps to create a project organizational chart. It provides insights into how the tasks, which may not always be planned and can be abrupt.
organizational structure influences decision-making and division of labor within a 6. Understanding the stages of team development and the driving factors behind
project team. them is crucial for effectively crafting and managing a project team.
Project Team Capacity Planning: 6.2.2 How to Build Successful Project Teams:
A cohesive and trustworthy team is likely to form when members share common
goals, values, and norms. Positive behaviors within the team are essential for success,
Teamwork is the act of bringing several individuals together to efficiently and
and a willingness to abide by agreed-upon values and norms should be a qualification
effectively complete a project. Project managers understand that cooperation and
for team membership. Building trust among team members is critical and requires
collaboration boost productivity and are essential in a team environment. Teamwork
nurturing. Some ways to build trust within a team include:
enables the smooth running of projects, accelerates the achievement of targets, and
helps project professionals overcome obstacles. It ensures that resources are well-  Sharing all relevant information openly and transparently.
managed, leading to reduced project timelines. Good teamwork contributes to more  Focusing on interests rather than individual positions during discussions and
successful project outcomes, higher profits, and adds to the quality and uniqueness of decision-making.
projects.  Expecting active participation from all team members.
 Respecting and valuing each other's time and contributions.
 Conveying consistent principles and adhering to them throughout the project.
6.2.1 Team Formation Process:  Providing plausible explanations for actions and decisions made within the team.
A group consists of two or more individuals who interact and influence each other  Offering regular status reports and forecasts to keep everyone informed.
while sharing a common identity. A team, on the other hand, is a group with  Making realistic commitments and delivering on them.
complementary skills committed to a common purpose defined by performance goals.  Showcasing individual expertise and knowledge to foster respect among team
Each team member is mutually accountable for achieving the group's objectives. members.
Teams can achieve more together than their individual members can accomplish  Protecting the interests of absent team members and ensuring their views are
alone. Projects are commonly executed through multi-disciplinary or cross-functional considered.
teams, which are formal workgroups. However, work teams are effective only if their  Showing compassion and understanding towards team members' challenges and
activities are well-coordinated and integrated. concerns.
 Verifying understanding and actively listening to each other's perspectives.
Social scientists have developed various models to explain how teams form, and one  Conducting self-critiques to identify areas for improvement.
such model consists of five stages of work team development:  Making decisions by consensus whenever feasible to ensure everyone's buy-in.
1. Forming Stage: In this stage, the work team focuses on understanding its goals By following these principles and practices, project managers can build successful
and procedures. Members might feel anxious about their roles and project teams that are well-aligned, cooperative, and capable of delivering
responsibilities within the team. outstanding project results.
2. Storming Stage: Competitive or strained behavior may emerge in this stage as
team members adjust to their roles and positions. Importance of Teamwork in Projects:
3. Norming Stage: Team members start to become more positive about the team as 1. Promotes Creativity: Teamwork fosters a collaborative environment for
a whole and develop trust and acceptance of each other. sharing ideas, leading to more effective strategies and innovative solutions.
4. Performing Stage: At this stage, the team functions effectively and achieves its 2. Encourages Risk-Taking: Working as a team provides support for taking
potential through trust and collaboration. calculated risks, leading to bolder decisions and problem-solving.
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 3. Builds Trust: Teamwork nurtures trust among members, encouraging open Change Management in Projects:
communication and mutual respect, enhancing productivity.
Organizational change refers to significant adjustments in various aspects of an
4. Brings Together Diverse Strengths: Collaboration harnesses individual skills,
organization, such as culture, processes, technology, or hierarchy. Change can be
resulting in well-rounded project execution and diverse perspectives.
adaptive (gradual, iterative) or transformational (larger scale, dramatic departure).
5. Increases Accountability: Team members feel responsible for their
contributions, driving commitment and dedication to project success. Change Management Process (Eight Steps):
1. Assessing the environment: Understand the context and reasons for change.
2. Determining the performance gap: Identify the disparity between the current
6. Teamwork Increases Project Momentum: Collaborative efforts accelerate
state and desired outcomes.
progress, achieving deadlines and boosting project momentum.
3. Diagnosing organizational problems: Analyze underlying issues and challenges.
7. Finding Solutions to Complex Problems: Teamwork enables collective
4. Identifying sources of resistance: Recognize potential obstacles to change.
problem-solving, leveraging expertise for creative and effective solutions.
5. Reducing resistance: Address and mitigate resistance to facilitate the change
8. Using Everyone's Skills: Assigning tasks based on individual strengths
process.
maximizes the team's potential and efficiency.
6. Setting goals: Establish clear and achievable objectives for the change initiative.
Builds Leadership Skills: Teamwork empowers all members to develop leadership 7. Developing and implementing the action plan: Create a detailed plan to execute
skills, fostering a self-organizing and empowered team environment. the change.
8. Monitor (review and control) change: Continuously assess progress, make
Conflict Management in a Project Environment:
adjustments, and ensure successful implementation.

Conflict in project environments is inevitable due to differences in values, attitudes, The provided text outlines the importance of change management plans and the
needs, expectations, resources, and personalities among team members. Proper various approaches that can be used to implement change effectively.
conflict management skills are essential for project managers and team members to Additionally, it mentions different types of change management plans that can be
handle and resolve conflicts effectively. used to drive successful transformation. Let's summarize the key points:
1. Four Broad Approaches to Implementing Change:
 Technological approach: Focusing on technological innovations to
Conflict Resolution Strategies: drive change.
 Task-based approach: Restructuring tasks and processes to facilitate
 Avoiding: People withdraw or ignore conflict to avoid discomfort, but this strategy change.
does not resolve the issue and can lead to unresolved issues.  Organizational redesign approach: Redesigning the organization's
 Competing: Overly assertive individuals aim to win in conflict resolution, which structure to accommodate change.
can lead to a winner-loses-all situation and hinder collaboration.  People-oriented approach: Prioritizing the human aspect of change
 Accommodating: Being overly cooperative but not assertive, individuals give in to management, including coaching and support.
keep the peace, but it may not lead to a satisfactory resolution. 2. Change Management Plan:
 Collaborating: A collaborative approach involves being cooperative and assertive,  A change management plan is a document that outlines specific
allowing each team member to contribute to a shared solution. activities required to bring about the desired change.
 Compromising: This strategy involves some level of cooperation and  Its purpose is to guide sponsors and managers to become effective
assertiveness, aiming for a compromise where each member gives up something leaders during the transformation process.
to achieve a fair resolution. 3. Types of Change Management Plans:

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  Coaching Plans for Managers: Using a "Coach the Coaches" approach  Project stakeholders include third parties with an interest in the
to drive change, identifying coaching needs and supporting project, such as adjacent landowners, environmental agencies, etc.
managers.  Stakeholders with high power and high interest require special
 Resistance Plans: Facilitating identification and management of attention and consideration from the project management team.
individuals or groups resistant to change. 3. Between Project Team Members:
 Sponsor Roadmaps: Providing guidance for sponsors to encourage  Conflict resolution and strong interpersonal skills are vital for
and support their teams during the change implementation. resolving disputes among team members.
 Training Plans: Tailored training based on assessments, including  The project manager should monitor intra-team relationships and
gamification tools and onboarding activities to support learning. take action when required to maintain team harmony and project
 Communication Plans: Detailed plans for communicating change progress.
effectively, including content, timing, format, sender, and receivers 4. Between the Project Management and Project Team:
of messages.  Project team members seek fair compensation and opportunities for
 Corrective Actions Plan: Helping team members who are struggling personal growth from the project.
with the change by identifying challenges and proposing solutions.  Besides fair compensation, team members value gaining new
 Celebrate Successes: Acknowledging and commending individual knowledge, acquiring skills, and obtaining valuable project
and team achievements during the change process to boost morale. experience.
In summary, successful change management involves a well-designed change
management plan that incorporates a variety of strategies and approaches to 6.6.4 Project Partnering and Strategic Partnering
address different aspects of the change process, thereby maximizing the chances Partnership and strategic partnering are collaborative relationships where two or
of achieving the desired outcomes. more parties come together to achieve long-term business objectives for mutual
benefit. These relationships involve sharing a vision, responsibilities, risks,
Relationship Management in Project Management. investments, and rewards. While partnerships do not necessarily lead to mergers,
6.6.1 Internal Relationships they can evolve into strategic partnerships when the parties have aligned long-
term goals.
Relationship management is a crucial aspect of project management as it involves Client-contractor partnerships can be highly beneficial if properly structured and
fostering positive connections and communication among various stakeholders to implemented. The key to successful partnerships lies in clearly defining the
ensure project success. The text highlights four major relationship groups within a motivation, goals, structure, and review mechanisms before formalizing the
project and offers insights on managing these relationships effectively: agreement through a memorandum of understanding or a partnership deed.
1. Between the Project Manager and Project Sponsor / Client: Partnerships aim to move away from transactional approaches and foster a more
 Building a strong relationship with the project sponsor/client is collaborative and transparent working environment.
essential for project success. Benefits of client-contractor partnerships include:
 Regular communication and confirmation of expectations help to  Increased chances of repeat business.
maintain client satisfaction.  b. Better pricing and reduced project costs.
 Demonstrating value through gestures like business lunches or face-  c. Improved interpersonal relationships among employees from both firms.
to-face meetings can strengthen the relationship.  d. Open book costing and transparency.
 Expanding the circle of project relationships, introducing  e. Mutual problem-solving.
subordinates and peers to their counterparts in the client  f. Opportunities for supplier development.
organization, can provide additional support.  g. Synergies for innovation.
2. Between the Project Manager and Project Stakeholders:  h. Shorter project life cycles.
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 i. Reduced contractual disputes and lower legal costs. J Part 1: Government Agencies
 . Reasonable profits for both businesses.
1. Formulation, Implementation, and Management: Government agencies play
 k. Long-term sustainability of the partners.
a significant role in all phases of project management, from project
 l. Joint research projects and collaborations.
formulation to implementation and ongoing management.
 m. Faster new product development.
 n. Improved customer satisfaction. 2. Procurement Entities: Government agencies are referred to as procurement
However, partnerships also come with certain risks, including the loss of entities when they engage in procurement activities. Project managers need
confidentiality, reduced performance, complacency, and collusive behavior. to be familiar with the specific agency responsible for the project and the
To address these risks, it is essential to have a performance-review and opt-out relevant regulations that govern them.
mechanism in the partnership agreement. 3. Public Procurement Laws and Regulations: Project managers working on
government projects must be well-versed in public procurement laws,
6.6.5 Development Partners regulations, and procedures to ensure compliance and transparency.
 Conflicts between procurement entities (government agencies) and development
partners can arise during the implementation and management of development 4. Assistance from Procurement Authority: Clarification or assistance can be
projects. The project manager must be aware of these potential sources of sought from the Public Procurement and Regulatory Authority officers when
conflicts to address them effectively. Some common causes of conflicts include: needed to navigate complex procurement processes.
 Use of inappropriate procurement methods. 5. Authorization for Special Procedures: Project managers must obtain
 b. Interference with project scope. necessary authorization from accounting officers or the Treasury for specially
 c. Poor or incomplete documentation. permitted procurement procedures like direct procurement, public-private
 d. Unethical practices such as bribery and corruption. partnerships, or framework agreements.
 e. Conflicts over responsibilities or roles of partners.
 f. Conflicts over the use of project resources. 6. Regulatory Powers: Government agencies may have regulatory powers
 g. Project cost escalation. related to project implementation, such as NEMA licenses for environmental
 h. Avoidance of procurement procedures through tender splitting. compliance or NCA registration for contractors.
 i. Biased tender evaluation processes. 7. Professional Certifications: Various professional bodies ensure projects are
 j. Lack of transparency. executed by certified professionals, and compliance with their standards may
 k. Excessive variations and claims due to poor contract administration procedures. be required.
 l. Project and program overlap or dual funding sources.
8. Project Approvals and Clearances: Before launching a project, the necessary
 m. Ineffective project supervision and control (monitoring and evaluation).
reports, licenses, permits, and certificates required by various government
 n. Use of debarred firms.
agencies should be obtained and complied with at appropriate stages.
 o. Use of un-prequalified firms.
 p. Political interference in the implementation of projects. 9. Audit Requirements: Some agencies, like NEMA and NCA, have audit
 q. Lack of stakeholder participation. requirements that must be met during project implementation and life.
 r. Environmental concerns.
10. Consequences of Audits: Government institutions and projects are regularly
 s. Poor control of variations and claims.
audited by the Kenya National Audit Office (KENAO), and adverse audit
 t. Lack of trust and respect among team members.
reports can have serious consequences.
 u. Human rights issues.
 v. Verbal miscommunication and misunderstanding. Part 2: Public-Private Partnerships (PPPs)
 w. Superior partner syndrome.
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 1. Special Type of Partnership: PPPs are a unique form of collaboration involving  Effective Communication: Communication lines are well-defined, enhancing
multiple parties, including a special purpose vehicle, government entity, information flow and decision-making.
bankers, insurers, contractors, and shareholders.
 Cross-Functional Collaboration: Collaboration between functional
2. Negotiation and Contractual Skills: PPPs require exceptional negotiation and departments and project teams promotes innovative solutions.
contractual skills due to the complexities and multiparty involvement.
 Expertise Integration: Various specialists contribute their expertise to
3. Regulatory Oversight: In Kenya, the PPP Act 2021 established the Public- projects, leading to comprehensive and high-quality deliverables.
Private Partnerships Directorate in the National Treasury to oversee all PPP
Weaknesses:
transactions and implementations.
 Power Struggles: Authority conflicts may arise between project managers and
4. Clear Objectives and Expectations: Effective management of involved parties
functional managers, leading to power struggles.
and stakeholders is crucial to achieving objectives and meeting expectations
in PPP arrangements.  Resource Conflicts: Resource allocation conflicts may occur when projects
compete for limited resources.
5. Appropriate Forms of Contract: PPPs should be based on suitable forms of
contract that consider the unique nature of each venture.  Role Ambiguity: Team members might face role ambiguity, as they have to
report to both functional and project managers.
6. Multiple Parties Involved: PPPs typically include various stakeholders, and
successful management of these parties is essential for project success.  Communication Overload: Multiple reporting channels may lead to
information overload and delays in decision-making.
7. Conflict Management: Due to the complexity of PPPs, conflict management
becomes a critical aspect to ensure smooth project execution.  Lack of Focus: Team members might prioritize functional tasks over project
tasks, leading to reduced project focus.
8. Long-Term Nature: PPPs often involve long-term commitments and require
careful planning and sustainability considerations. 2. PRINCE2.0 Project Management Framework for Rural Water Supply Projects

9. Risk Allocation and Sharing: Risk allocation and sharing among the parties PRINCE2 (Projects IN Controlled Environments) is a structured project management
must be carefully negotiated and documented to mitigate potential framework widely used in various industries. Its suitability for managing government-
challenges. funded water supply projects in rural areas depends on the specific context and
requirements of the projects. Some points to consider are:
10. Value for Money: PPPs should be structured to achieve value for money and
public interest while delivering high-quality services and infrastructure. Suitability:

QUESTIONS AND ANSWERS  PRINCE2 provides a clear and structured approach to project management,
which can help ensure projects are well-defined and controlled.
 It emphasizes a focus on the business case, which is essential for
1. Strengths and Weaknesses of a Strong Matrix Structure for Project Delivery
government-funded projects to demonstrate value for money and public
Strengths: interest.
 Efficient Resource Utilization: Resources are shared across projects,  The framework's emphasis on clearly defined roles and responsibilities can
maximizing their utilization and reducing redundancies. help clarify accountability in government projects with multiple stakeholders.
 Clear Project Objectives: The project manager has significant authority and
can ensure clear project objectives are set and followed.
33
  PRINCE2 is flexible and scalable, making it adaptable to different project sizes hybrid. e. Assign Roles and Responsibilities: Clearly define roles and
and complexities, which is valuable for rural water supply projects that vary in responsibilities for each position and team member.
scope. 5. Establish Communication Channels: Set up communication channels to ensure
effective information flow.
Limitations:
6. Form Teams: Build teams with the necessary skills and expertise to execute the
 PRINCE2 might be seen as bureaucratic and documentation-heavy, which can project.
add administrative burden to smaller rural projects with limited resources. 7. Define Reporting Relationships: Clarify reporting lines to ensure accountability
 The framework may not fully address the unique challenges and constraints and decision-making.
of rural areas, such as limited infrastructure and accessibility issues. 8. Monitor and Adjust: Continuously monitor the project's progress and adapt the
organizational structure as needed.
 Government projects often involve political considerations and stakeholder
interests that may require additional project management approaches Factors Influencing CEO's Grant of Autonomy to Project Manager in Management
beyond PRINCE2. Consulting Project

3. Unpopularity of Partnering as a Relationship Strategy in Government Business  Project Complexity: In highly complex projects, CEOs may grant more
autonomy to project managers to make agile and quick decisions.
 Bureaucracy and Regulations: Government agencies often have strict
procurement rules and regulations that hinder the adoption of flexible  Experience and Expertise: If the project manager has a proven track record
partnering arrangements. and expertise, the CEO may be more willing to grant higher autonomy.

 Perceived Lack of Control: Governments may be hesitant to enter into long-  Project Size and Budget: Larger and well-funded projects may allow for more
term partnerships, fearing a loss of control over projects and public funds. autonomy as the stakes and resources are higher.

 Limited Collaboration Culture: Governments may have a traditional top-down  Risk Tolerance: CEOs with higher risk tolerance may be more inclined to grant
approach to project management, which doesn't prioritize collaborative autonomy to project managers to take calculated risks.
partnering.  Trust and Confidence: If the CEO has high trust and confidence in the project
 Risk Aversion: Partnering can involve shared risks, which may be seen as a manager's abilities, they are more likely to delegate authority.
disadvantage by risk-averse government entities.  Project Criticality: The criticality of the project's success may influence the
 Short-Term Focus: Governments may prefer short-term project arrangements level of control the CEO retains or delegates to the project manager.
to align with political cycles, making long-term partnerships less appealing.  Organizational Culture: An organization that values empowerment and
4. Coming Up with an Organizational Structure for a Major Construction Project decentralized decision-making is more likely to grant autonomy.

Steps:  Time Sensitivity: Urgent projects may require quick decision-making, leading
to more autonomy for the project manager.
1. Define Project Objectives: Clearly understand the project's goals and
requirements.  Client Expectations: If the client expects direct involvement with the project
2. Identify Key Stakeholders: Identify all stakeholders and their roles in the project. manager, the CEO may limit autonomy.
3. Analyze Project Complexity: Assess the project's size, scope, and complexity to  Performance Metrics: CEOs may grant autonomy based on agreed-upon
determine the appropriate organizational structure. performance metrics to be achieved.
4. Select Suitable Structure: Choose the organizational structure that best aligns
Essential Contents of a Joint Venture Agreement (JVA) for Project Delivery
with the project's characteristics, such as functional, projectized, matrix, or
34
A Joint Venture Agreement (JVA) is a contract between two or more parties that 4. Decision-making Authority: Conflicts may occur when partners disagree on
outlines the terms and conditions of their collaboration on a specific project. The decision-making authority and responsibilities.
essential contents of a JVA for project delivery include:
5. Risk Allocation: Disagreements over the distribution of risks and liabilities can
1. Identification of Parties: Clear identification of the parties involved in the joint lead to conflicts during project execution.
venture, including their legal names and addresses.
6. Contractual Obligations: Breach of contract or disagreements over contract
2. Project Description: A detailed description of the project, including its terms can result in conflicts.
objectives, scope, deliverables, and timeline.
7. Cultural Differences: Cultural misunderstandings between partners may lead
3. Contributions: The contributions each party will make to the joint venture, to conflicts in communication and working styles.
such as financial investments, resources, expertise, or technology.
8. Scope Creep: Expanding project scope without consensus can create conflicts
4. Ownership and Management: The distribution of ownership and over project deliverables and timelines.
management responsibilities among the parties, including decision-making
9. Quality and Performance Standards: Disagreements over quality and
authority.
performance standards may result in conflicts.
5. Profit and Loss Sharing: How profits and losses will be shared among the
10. Leadership and Management Styles: Differences in leadership and
parties, often based on their contributions or other agreed-upon criteria.
management approaches may lead to conflicts in decision-making and
6. Dispute Resolution Mechanism: Procedures for resolving disputes that may project direction.
arise during the project.
7. Risk Allocation: How risks and liabilities will be allocated among the parties.
CHAPTER 7: QUALITY AND RISK MANAGEMENT IN PROJECTS
8. Confidentiality and Non-Compete: Provisions to ensure confidentiality and CHAPTER 7: Quality and Risk Management in Projects
restrictions on the parties from engaging in competing activities.
Quality and risk management are critical aspects of project management that ensure
9. Term and Termination: The duration of the joint venture and conditions for successful project outcomes and minimize potential negative impacts. This chapter
termination or extension. explores the concepts of quality management and risk management and their
importance in project planning and execution.
10. Governing Law and Jurisdiction: The law governing the JVA and the
jurisdiction where disputes will be resolved. Section 7.1: Quality Management in Projects
Common Causes of Conflicts with Development Partners During Project Planning 1. Introduction to Quality Management: An overview of quality management
and Implementation principles and its significance in project success.
1. Misaligned Objectives: Different partners may have varying objectives, 2. Quality Planning: The process of defining quality standards, metrics, and
leading to conflicts over project goals and priorities. objectives for the project.
2. Communication Gaps: Inadequate communication or misunderstandings can 3. Quality Assurance: Ensuring that the project follows established quality
lead to conflicts over roles, responsibilities, and expectations. standards and processes throughout its lifecycle.
3. Resource Allocation: Conflicts may arise when partners compete for limited 4. Quality Control: Monitoring and inspecting project deliverables to identify
resources, such as funding or skilled personnel. and rectify defects or deviations from quality standards.

35
 5. Continuous Improvement: Strategies to promote continuous improvement in Section 7.4: Case Studies and Best Practices
project processes and deliverables.
1. Real-life Case Studies: Examining successful project examples that
6. Quality Tools and Techniques: Introduction to various quality tools such as Six demonstrate effective quality and risk management practices.
Sigma, Lean, and Statistical Process Control.
2. Best Practices: Highlighting industry best practices in quality and risk
7. Cost of Quality: Understanding the costs associated with maintaining and management for project success.
improving project quality.
Conclusion: Summarizing the key points discussed in the chapter and emphasizing the
Section 7.2: Risk Management in Projects importance of quality and risk management in achieving project objectives.
1. Introduction to Risk Management: Overview of risk management principles Definition of Quality
and its role in project success.
Quality in projects refers to the degree to which a project's deliverables, processes,
2. Risk Identification: Techniques for identifying potential risks that may impact and outcomes fulfill the specified requirements and expectations of the stakeholders.
the project's objectives. It encompasses both the management of the project itself and the quality of the final
product or service produced by the project.
3. Risk Assessment and Analysis: Evaluating and analyzing identified risks in
terms of their probability and impact. Key aspects of quality in projects include:
4. Risk Response Planning: Developing strategies to mitigate or respond to 1. Meeting Customer Requirements: The primary objective of quality
identified risks. management is to meet or exceed the requirements and expectations of the
project's customers or clients. This involves understanding and defining
5. Risk Monitoring and Control: Continuous monitoring and control of project
customer needs and ensuring that the project deliverables fulfill those needs
risks and their effectiveness.
effectively.
6. Contingency Planning: Developing contingency plans to address unexpected
2. Product and Process Quality: Quality management addresses both the
risks and uncertainties.
quality of the project's final product or service and the quality of the
7. Risk Register: Creating and maintaining a risk register to track and manage processes used to create it. It involves establishing quality standards for the
project risks. product and implementing processes that adhere to those standards.
Section 7.3: Integrating Quality and Risk Management 3. Prevention over Inspection: Modern quality management emphasizes the
1. Quality and Risk Integration: The importance of integrating quality and risk importance of prevention over inspection. Instead of relying solely on
management to enhance project performance. inspection to detect and correct defects, quality is built into the project from
the beginning, reducing the likelihood of errors and rework.
2. Balancing Quality and Risk: Strategies for finding the right balance between
achieving high-quality deliverables and managing project risks. 4. Continuous Improvement: Quality management advocates for continuous
improvement throughout the project life cycle. This involves regularly
3. Risk-Based Quality Management: Utilizing risk assessments to prioritize assessing and refining processes and deliverables to achieve higher levels of
quality efforts and resources. quality.
4. Managing Quality Risks: Identifying risks associated with maintaining high- 5. Cost of Quality (COQ): COQ refers to the total cost incurred to achieve and
quality standards and addressing them proactively. maintain project quality. It includes the cost of prevention, appraisal, and
5. Project Success Metrics: Establishing metrics to measure both quality failure. Effective quality management seeks to minimize the cost of quality by
achievements and risk management effectiveness.
36
 investing in prevention and appraisal activities to reduce the cost of failures Quality Control (QC): Quality control focuses on the specific steps taken to validate
and rework. the accuracy and precision of project activities and deliverables. It involves monitoring
and inspecting the project processes to identify and rectify any deviations from the
6. Management Responsibility: Quality management is a shared responsibility
established quality standards. Key elements of QC include:
among all project team members, but it remains the responsibility of project
management and leadership to provide the necessary resources and support 1. Inspection and Testing: Conducting inspections and tests at various stages of
for achieving project quality objectives. the project to verify compliance with quality standards.
7. Customer Satisfaction: Ultimately, quality in projects is linked to customer 2. Data Validation: Ensuring the accuracy and integrity of project data through
satisfaction. Meeting customer needs and delivering high-quality products data validation and verification processes.
lead to higher customer satisfaction, which is essential for project success
3. Error Detection and Correction: Identifying errors or defects in deliverables
and reputation.
and taking corrective actions to rectify them.
The quality assessment and control process in project management
4. Statistical Quality Control: Using statistical techniques to analyze data and
is essential to ensure that the project meets the required standards and delivers the monitor process performance.
desired outcomes. It involves both quality assurance (QA) and quality control (QC)
5. Quality Checkpoints: Implementing checkpoints and milestones to assess
measures to monitor and validate the accuracy and precision of project activities and
project progress and quality.
deliverables.
6. Peer Reviews: Involving independent reviews or peer assessments to provide
Quality Assurance (QA): Quality assurance is a proactive process that involves the
objective feedback on project quality.
development of a comprehensive plan to maintain quality throughout the project. It
encompasses various activities and strategies to ensure that the project's processes Quality Control Tools: Quality control tools are essential instruments that aid project
and deliverables adhere to the defined quality standards. The key elements of QA managers and teams in monitoring, assessing, and improving the quality of project
include: deliverables. These tools facilitate data collection, analysis, and visualization, enabling
teams to identify issues, trends, and potential improvements. By using these tools
1. Quality Planning: Developing a detailed quality management plan that
effectively, project managers can make informed decisions to ensure the final product
outlines the quality objectives, standards, and methods to be used to achieve
meets quality requirements and adheres to industry standards.
them.
1. Cause and Effect Diagram (Fishbone Diagram): The cause and effect diagram, also
2. Process Documentation: Ensuring that all project processes and procedures
known as the fishbone diagram, visually represents the relationship between potential
are well-documented and accessible to the project team.
causes and a specific effect or problem. It is an effective tool for identifying the root
3. Training and Competence: Providing necessary training and development causes contributing to variations in quality.
opportunities to project team members to enhance their skills and
Points:
competencies.
 Main branches of the diagram represent major categories of causes, such as
4. Quality Assurance Audits: Conducting regular audits and reviews to assess
machine, material, method, measurement, environment, and people.
compliance with quality standards and identify areas for improvement.
 Sub-branches under each category detail specific factors that may be causing
5. Quality Reviews: Performing formal reviews of project deliverables at key
the problem.
milestones to assess their quality and alignment with requirements.
 The fishbone diagram encourages team collaboration and brainstorming to
6. Risk Management: Implementing risk management strategies to identify and
explore potential causes comprehensively.
address potential quality risks that could impact project outcomes.
37
  It facilitates problem-solving and decision-making by focusing on the most  Teams can use histograms to compare data from different processes or
influential factors affecting quality. products, aiding in quality comparisons.
2. Check Sheet: A check sheet is a structured form used to collect and organize data  The tool helps in identifying outliers or unusual data points that may require
for easy analysis and interpretation. It simplifies data collection and aids in identifying further investigation.
trends and patterns.
 Histograms support data-driven decision-making by providing a clear picture
Points: of the data's characteristics.
 Check sheets are customizable and can be tailored to specific data collection 5. Pareto Chart: Pareto charts are bar graphs that prioritize issues based on their
needs. frequency or impact, allowing teams to focus on significant problem areas.
 Teams can use check sheets to track defects, errors, or other quality-related Points:
metrics in real-time during project execution.
 The Pareto principle (80/20 rule) states that roughly 80% of problems come
 The tool helps in determining the frequency and distribution of issues, from 20% of causes.
guiding improvement efforts.
 Pareto charts help in setting priorities for improvement efforts, leading to
 Check sheets are simple and cost-effective, making them accessible to all efficient resource allocation.
project team members.
 The tool emphasizes tackling the most critical issues first to achieve maximum
3. Control Chart: Control charts are graphical representations of process performance impact.
over time. They display data points along with control limits and the process mean,
 Pareto charts provide a clear visual representation of the vital few versus the
aiding in identifying variations and trends.
trivial many.
Points:
6. Scatter Diagram: Scatter diagrams plot paired data points to assess the relationship
 Control charts distinguish between common-cause variation (inherent to the between two variables, helping teams identify correlations.
process) and special-cause variation (indicating an issue).
Points:
 They help in monitoring process stability and detecting deviations from the
 Scatter diagrams display patterns in data and help determine if there is a
norm.
causal relationship between variables.
 Control charts provide a basis for making data-driven decisions and
 The tool assists in understanding whether variables have a positive, negative,
implementing corrective actions.
or no correlation.
 The tool facilitates effective communication of process performance to
 It helps teams assess the strength and direction of relationships, supporting
stakeholders.
effective decision-making.
4. Histogram: Histograms are visual representations of the frequency distribution of
 Scatter diagrams are valuable for analyzing cause-and-effect relationships in
data, allowing teams to analyze data spread and central tendency.
complex data sets.
Points:
7. Stratification: Stratification involves sorting data into categories or layers to simplify
 Histograms assist in identifying the shape and pattern of data distribution, analysis and identify patterns.
including normality or skewness.
Points:

38
  Stratification is useful when working with large and diverse data sets, making 10. Failure Mode and Effects Analysis (FMEA): FMEA is a risk assessment technique
it easier to identify trends and outliers within specific subgroups. that identifies potential failures, assesses their impact, and develops mitigation
strategies.
 The tool aids in understanding variations among different categories of data
and identifying potential causes. Points:
 It helps teams focus on specific areas of concern and facilitates targeted  FMEA prioritizes failure modes based on severity, frequency, and detection,
improvement efforts. helping teams focus on high-impact risks.
 Stratification improves the accuracy and interpretability of data analysis.  The tool supports preventive actions and reduces the likelihood of defects or
failures in the project deliverables.
8. Affinity Diagram: Affinity diagrams categorize and organize data collected from
brainstorming or research, helping teams identify patterns and relationships.  FMEA fosters a proactive approach to quality control, leading to continuous
improvement.
Points:
 It enhances the overall reliability and quality of the final product or service.
 Affinity diagrams promote creative problem-solving and encourage
participation from diverse stakeholders. By leveraging these quality control tools and techniques effectively, project managers
can drive continuous improvement, identify and mitigate risks, and deliver high-quality
 The tool aids in managing and organizing complex data, making it easier to
projects that meet stakeholder expectations
identify connections and insights.
Quality Assurance in Projects:
 Affinity diagrams support effective decision-making by visually grouping
related ideas or concepts. Quality assurance (QA) is an integral part of project management that ensures the
project's deliverables meet the required standards and fulfill customer expectations. It
 They facilitate consensus-building and communication among team
involves systematic planning, implementation, and evaluation of processes to
members.
maintain and improve product quality throughout the project's lifecycle. Quality
9. SIPOC Diagram: SIPOC diagrams (Suppliers, Inputs, Process, Outputs, Customers) assurance aims to prevent defects, errors, or issues from occurring and ensures that
provide a comprehensive overview of a process, including stakeholders and their the project outputs align with the defined requirements.
roles.
How Quality Assurance is Used in Project Management:
Points:
1. Early Planning for Quality: Quality assurance starts at the project planning
 SIPOC diagrams help project teams understand the end-to-end flow of a stage, where project managers define quality objectives, standards, and
process and identify potential bottlenecks or gaps. metrics. They identify critical quality checkpoints and establish processes to
 The tool aids in defining process boundaries and clarifying roles and ensure compliance with quality requirements.
responsibilities. 2. Continuous Monitoring and Improvement: QA activities occur throughout
 SIPOC diagrams facilitate communication with stakeholders by providing a the project's lifecycle, with ongoing monitoring of processes, deliverables,
clear representation of the process. and performance. Regular reviews and audits help identify areas for
improvement and prompt corrective actions.
 They serve as a foundation for process improvement initiatives and process
documentation. 3. Resource Management: QA involves allocating appropriate resources,
including skilled personnel, tools, and technologies, to execute quality

39
 activities effectively. It ensures that the team has the necessary expertise to Constraints in Project Management:
deliver high-quality results.
Constraints in project management refer to the limitations and boundaries that can
4. Documentation and Documentation Management: QA emphasizes the impact the project's success and outcomes. Identifying and understanding these
importance of accurate and comprehensive documentation. Project teams constraints is crucial for effective project planning and decision-making. Here are
maintain records of processes, decisions, and changes, facilitating traceability some common constraints in project management:
and future reference.
a. Scope Constraint: The scope constraint defines the boundaries of the project and
5. Quality Framework and Standards: Quality assurance establishes a includes both what is included and what is excluded from the project. Project
framework for consistent and standardized processes across the managers need to clearly define the project's scope to set expectations and avoid
organization. This framework helps align projects with company policies and scope creep. Scope constraints ensure that the project team focuses on delivering the
industry best practices. agreed-upon deliverables and does not get sidetracked by additional requests or
changes.
6. Validation and Verification: QA ensures that project deliverables meet the
specified requirements and are error-free. Validation ensures that the b. Cost Constraint: The cost constraint refers to the budget allocated to the project.
product satisfies customer needs, while verification checks adherence to Project managers must estimate and manage costs throughout the project's lifecycle
technical specifications and quality standards. to ensure that the project stays within the budget limits. Overspending or cost
overruns can negatively impact the project's success.
7. Customer Feedback and Satisfaction: Quality assurance incorporates
customer feedback to assess the project's success in meeting their c. Time Constraint: The time constraint involves the project's schedule and deadlines.
expectations. Customer satisfaction surveys and feedback loops help identify Meeting project milestones and delivering the final product on time is crucial for
areas for improvement and inform future projects. project success. Effective time management is essential to ensure that the project
stays on track and is completed within the agreed-upon timeframe.
Three Types of Quality Assurance Methods:
d. Quality Constraint: The quality constraint focuses on delivering a product or service
1. Statistical Process Control (SPC): SPC is used for projects involving
that meets the required quality standards. Project managers must define quality
technology or chemistry, where ongoing monitoring and continuous
criteria and ensure that the project's outputs meet those criteria. Sacrificing quality to
improvement are crucial. It relies on statistical tools and charts to track
meet other constraints can lead to customer dissatisfaction and project failure.
processes, identify variations, and make data-driven decisions.
e. Customer Satisfaction Constraint: Customer satisfaction is a critical constraint as it
2. Failure Testing: This method evaluates physical or virtual products' resilience
measures how well the project's deliverables meet the customer's needs and
against different stress scenarios. Physical products are tested for durability
expectations. A successful project must not only meet the technical requirements but
and usability, while virtual products undergo tests for performance and
also deliver a satisfactory experience to the end-users or stakeholders.
security.
f. Resource Constraint: Resource constraints involve the availability and allocation of
3. Total Quality Management (TQM): TQM focuses on continuous
resources, both human and material. Project managers need to ensure that they have
improvement through quantitative analysis. It aims to create consistent and
the right skills and expertise on the project team and that resources are effectively
predictable processes to enhance efficiency and quality. TQM relies on data
utilized to achieve project goals. Lack of resources can hinder project progress and
and analysis to plan and implement improvements.
lead to delays.
Regardless of the specific quality assurance method used, having a well-defined
Other potential constraints in project management can include risk constraints,
execution plan and continuous monitoring allows project teams to ensure the highest
technology constraints, sponsor commitment constraints, organizational objectives
level of quality and customer satisfaction throughout the project's lifecycle.
constraints, and economic conditions constraints. Identifying and managing these

40
constraints proactively helps project managers navigate challenges and achieve 3. Goal-Oriented Approach: ISO certification sets a specific time frame for project
successful project outcomes. goals, from preparation to accomplishment, monitoring, and closing the work. It helps
in setting achievable targets and measuring progress.
How to Avoid the Effects of Project Constraints:
4. Information Security Management: ISO 27001 certification provides guidelines for
Failing to manage project constraints effectively can lead to project delays, budget
information security management systems, ensuring the safety of information assets
overruns, and unsatisfactory outcomes. Here are some steps project managers can
in the digital era.
take to avoid or minimize the effects of project constraints:
5. Energy Management and Environmental Quality: ISO 50001 and ISO 14001
a) Understand the Constraints: The first step is to thoroughly understand the
certifications focus on energy management and environmental quality, respectively.
constraints that impact the project. Project managers should identify which aspects of
These certifications help companies reduce their energy footprint, greenhouse gas
the project will be affected by each constraint and assess the potential risks and
emissions, and demonstrate their commitment to environmental sustainability.
impacts. Tools like risk analysis and cause and effect analysis can help in this process.
Once the constraints are clear, the project manager can develop strategies to mitigate 6. Employee Safety and Health: ISO 45001 certification provides a detailed framework
their effects. for ensuring the safety and health of employees, leading to a safer working
environment and reduced workplace hazards.
b) Educate Key Stakeholders: Effective communication with stakeholders, sponsors,
and customers is crucial. Project managers should educate key stakeholders about the 7. Customer Trust and Attraction: ISO certifications build trust among customers,
constraints that the project is facing and the potential implications. Stakeholders need demonstrating that a company follows standardized quality and safety practices. It can
to understand the trade-offs and limitations to set realistic expectations and provide attract new customers and increase revenue.
the necessary support.
8. Resource Efficiency and Waste Control: ISO certification promotes resource
c) View Constraints Positively: Instead of perceiving constraints as limitations, project efficiency, energy conservation, and waste control, contributing to sustainable
managers should view them as opportunities for creativity and problem-solving. practices.
Constraints can drive innovation and encourage the team to find efficient and effective
By obtaining ISO certifications, organizations in project management can enhance
solutions. A positive mindset can lead to more productive approaches to addressing
their processes, ensure compliance with international standards, and gain a
the challenges posed by constraints.
competitive edge in the market.
Importance of ISO Certification in Project Management:
Risk Identification in Projects: Risk identification is the process of identifying potential
ISO certification is valuable for project management as it provides a standardized risks that may impact the project objectives. Common types of risks include cost,
framework for ensuring quality, safety, and environmental standards. Some key schedule, performance, implementation, training, and testing risks. Project managers
benefits of ISO certification in project management include: should analyze each risk's likelihood and potential impact on the project outcomes.
1. Improved Performance and Quality: ISO 9001 certification helps organizations Risk Analysis in Projects: Risk analysis involves determining the probability of a risk
improve their performance and the quality of products and services offered. It occurring and the severity of its impact on the project. This helps in translating risks
establishes a systematic approach to quality management, leading to better project into quantitative values, allowing for a ranking of risks based on their importance and
outcomes. priority. A Probability-Impact Matrix can be used to assess risks using descriptive
terms or numeric values.
2. Problem Solving and Opportunity Identification: ISO certification encourages
organizations to identify and address problems, as well as seize opportunities available Risk Monitoring and Control in Projects: Risk monitoring is the process of reviewing
in the market. This proactive approach supports continuous improvement in project expected risk factors and taking control or response actions. Three strategies are
management practices. applied to deal with risks: avoid, transfer, or mitigate. Proactive risk management aims
to identify and manage risks before they become problems. Risk response actions can
41
be context actions (specific agreements, contract revisions, insurance) or internal
actions (information collection, involving experts, contingency planning).
QUESTIONS AND ANSWERS
1. Cost of Quality: The "cost of quality" refers to the total cost incurred by an
isk Register: A risk register or risk log is a document used to list, assess, and rank all organization to ensure that its products or services meet the required quality
known risks in a project. It helps in considering appropriate responses to each risk. The standards. It includes both the cost of preventing defects and the cost of
risks can be dealt with in various ways: dealing with defects that have already occurred. The cost of quality is often
categorized into four main types:
 Avoid the risk: Abandoning possible causes of the risk, even leading to project
abandonment.  Prevention Costs: These are costs incurred to prevent defects from occurring
in the first place. Examples include training employees, implementing quality
 Take precautions to prevent or mitigate the risk impact: Implementing
management systems, conducting inspections, and improving processes to
measures like high-security fencing, data backups, financial audits, etc.
reduce the likelihood of errors.
 Accept the risk: Accepting small risks that may not significantly impact the
 Appraisal Costs: These are costs associated with evaluating products or
project.
services to ensure that they meet quality standards. Examples include
 Share the risk: Undertaking the project as a joint venture or consortium with inspection and testing activities, audits, and quality control activities.
other parties.
 Internal Failure Costs: These are costs incurred when defects are detected
 Limit the risk: Phasing work or step-by-step implementation, imposing before the product or service reaches the customer. Examples include
budgetary limits on each stage. rework, scrap, and the cost of investigating and resolving internal quality
 Transfer the risk: Transferring risk through insurance. issues.

Risk Management Frameworks: Different risk management standards have been  External Failure Costs: These are costs incurred when defects are detected by
developed worldwide to help organizations implement risk management customers or users after the product or service has been delivered. Examples
systematically and effectively. Some commonly used risk management standards include warranty claims, product recalls, customer complaints, and legal
include: costs.

 ISO 31000:2000 - Risk management Principles and Guidelines The goal of managing the cost of quality is to strike a balance between prevention and
appraisal costs (investing in quality to avoid defects) and internal and external failure
 ISO/IEC 31010:2009 - Risk Assessment Techniques costs (costs incurred due to defects). By investing in prevention and appraisal
 Management Standard (published by the Institute of Risk Management) activities, organizations can reduce the overall cost of quality and improve customer
satisfaction.
 Risk Management Professional (by the Risk Management Society)
2. Risk in Project Risk Management: In project risk management, the term
 Professional Risk Managers Handbook (by the Professional Risk Managers’ "risk" refers to an uncertain event or condition that, if it occurs, could have a
International Association – PRMIA) positive or negative impact on one or more project objectives, such as scope,
 “Governance-Risk-Compliance” GRC Certification (by the non-profit schedule, cost, and quality. Risks are events or circumstances that may or
organization OCEG) may not happen, but their occurrence could affect the successful completion
of a project.
ISO 3100 provides principles, framework, and a process for managing risk, suitable for
organizations of any size or sector. PMI also offers a certification program for project Project risks can arise from various sources, including external factors (such as changes
risk managers called PMI Risk Management Professional (PMI-RMP). in regulations or market conditions), internal factors (such as lack of expertise or
42
resource constraints), technical challenges, and uncertainties in project execution. The  2. Inspection and Testing: Regular inspections and testing of materials,
risk management process involves identifying, analyzing, and responding to risks to components, and completed work to ensure they meet quality requirements.
minimize their impact and likelihood of occurrence.
 3. Statistical Process Control (SPC): Analyzing and monitoring construction
3. Effective Risk Management Process for a Project Organization: An effective processes using statistical methods to identify variations and take corrective
risk management process in a project organization typically involves the actions.
following steps:
 4. Pareto Analysis: Prioritizing quality issues by identifying and focusing on
 Risk Identification: Identifying all potential risks that could affect the project. the most significant factors contributing to defects or non-conformances.
This includes brainstorming sessions, lessons learned from previous projects,
 5. Root Cause Analysis: Investigating the underlying causes of quality issues
and analysis of project documents.
to prevent their recurrence in the future.
 Risk Analysis: Assessing the impact and likelihood of each identified risk. This
6. Basic Principles of Total Quality Management (TQM): Total Quality
involves qualitative analysis (assigning probability and impact scores) and
Management is a management philosophy that focuses on continuously
quantitative analysis (using data and modeling techniques).
improving the quality of products, services, and processes. The basic
 Risk Response Planning: Developing strategies to respond to identified risks. principles of TQM include:
This includes risk avoidance, risk mitigation, risk transfer, risk acceptance, and
 1. Customer Focus: Meeting and exceeding customer expectations is the
contingency planning.
primary goal of TQM.
 Risk Monitoring and Control: Continuously monitoring identified risks
 2. Continuous Improvement: Constantly seeking opportunities to improve
throughout the project's life cycle and taking necessary actions to address
processes, products, and services.
changes in risk exposure.
 3. Employee Involvement: Involving and empowering employees to
4. Proactive vs. Reactive Risk Management:
contribute to quality improvement.
 Proactive Risk Management: Proactive risk management involves identifying
 4. Process Approach: Managing activities and resources as interrelated
and addressing risks before they occur. It focuses on prevention and
processes to achieve quality objectives.
mitigation strategies to reduce the likelihood and impact of potential risks.
Proactive risk management seeks to anticipate and prepare for risks, leading  5. Data-Driven Decision Making: Using data and metrics to make informed
to better project outcomes and reduced disruptions. decisions and drive improvement.

 Reactive Risk Management: Reactive risk management involves responding  6. Supplier Relationships: Collaborating with suppliers to ensure the quality
to risks after they occur. It deals with managing the consequences of risks of inputs and materials.
that were not adequately addressed during the planning phase. Reactive risk  7. Leadership Commitment: Active commitment and support from top
management focuses on containment and damage control to minimize the management in promoting a quality-focused culture.
negative impact of realized risks.
7. Importance of Using 'Quality Circles' in Project Management: Quality circles
5. Five Quality Control Tools/Techniques in Construction Projects: Some are voluntary groups of employees who come together to identify and solve
quality control tools and techniques commonly applied in construction quality-related issues within an organization. In project management, quality
projects include: circles can play
 1. Checklists: Used to ensure that all required tasks and activities are
completed and comply with quality standards.

43
9.  Risk Response Strategies: The chosen method to deal with the risk
Methods of Dealing with Risk (Risk Response): In project risk management, (avoidance, mitigation, transfer, acceptance, or exploitation).
there are six primary methods of dealing with identified risks:
 Contingency Plans: Plans outlining specific actions to be taken if the risk
 1. Avoidance: This method involves taking actions to eliminate the risk or materializes.
change the project's approach to avoid the risk entirely. It may include
 Risk Triggers: Specific events or indicators that indicate the risk is becoming
altering project scope, technology, or location to mitigate potential negative
more likely or imminent.
impacts.
 Current Status and Updates: The current status of the risk, including any
 2. Mitigation: Mitigation involves taking proactive actions to reduce the
changes or updates.
probability or impact of a risk. This method aims to lessen the severity of
potential consequences should the risk occur.  Risk Monitoring and Review: The process for ongoing monitoring and review
of the risk throughout the project.
 3. Transfer: Risk transfer involves shifting the responsibility for managing a
risk to another party, typically through insurance or outsourcing. The risk  Residual Risks: Any remaining risks that remain after risk response actions
remains, but its financial impact is borne by a third party. have been implemented.

 4. Acceptance: Acceptance means acknowledging the existence of a risk but 11. Review of Standard Tender Documents (STD) for Procurement Works: The
choosing not to take any specific action to address it actively. It is appropriate review of the Standard Tender Documents (STD) for Procurement Works –
for risks with low impact or low probability. Building and Associated Civil Engineering Works published by the Public
Procurement and Regulatory Authority should involve analyzing how the
 5. Exploitation: This method is used for positive risks, also known as
allocation of risks is distributed between the Employer and the Contractor.
opportunities. Exploitation involves taking actions to increase the probability
Key points to consider include:
or impact of positive events that would benefit the project.
 Risk Allocation: Assess how the document allocates various risks between
 6. Contingency: Contingency planning involves creating a response plan in
the Employer and the Contractor. For example, risks related to design, site
advance to address the impact of a risk if it materializes. Contingency plans
conditions, materials, labor, and performance delays.
are put into action when specific triggers or events occur.
 Indemnity and Liability: Check for clauses that indemnify or limit the liability
10. Essential Contents of a Project Risk Register: A project risk register is a
of the Employer or the Contractor for specific risks or damages.
comprehensive document used to record all identified project risks and their
relevant information. The essential contents of a risk register typically  Insurance Requirements: Evaluate the insurance requirements stipulated in
include: the document for different types of risks and the responsibility for obtaining
and maintaining insurance.
 Risk Identification Information: The name, description, and category of the
risk.  Force Majeure and Changes in Law: Examine provisions related to force
majeure events and changes in law, and how these events may impact the
 Risk Owner: The person responsible for managing the risk.
allocation of risks.
 Risk Probability and Impact: The assessment of the likelihood and potential
 Dispute Resolution: Review the dispute resolution mechanisms included in
consequences of the risk.
the document and how they address potential risks and conflicts.
 Risk Ranking: The risk's priority or ranking based on the probability and
impact assessment.

44
  Termination and Suspension: Analyze clauses related to termination and There are two main aspects of procurement in projects. The first aspect is bringing the
suspension of the contract and how they account for risks that may lead to contractor on board through competitive selection processes and contracting. The
such actions. second aspect involves the act of purchasing materials, equipment, services, and
supplies required for project activities, commonly referred to as purchasing.
12. Handling Cost Escalation Risks in the Planning Phase of a Project: Cost
escalation risks refer to the potential for project costs to increase beyond the Client's project manager liaises with the contractor's team to ensure:
initial budget due to factors like inflation, fluctuating material prices, or
1. Qualified procurement professional hired by the contractor.
changes in market conditions. Handling cost escalation risks in the planning
phase involves the following steps: 2. Comprehensive procurement plan prepared, aligned with budget and cash
flow.
 Market Research: Conduct a thorough market research to identify potential
cost escalation factors that could affect the project. This includes analyzing 3. Thorough consideration of feasible procurement options.
historical data, industry trends, and economic indicators. 4. Clear understanding of contract terms.
 Risk Assessment: Quantify the potential impact of cost escalation risks on the 5. Regular supplier performance reviews conducted.
project budget and schedule. Use historical data and expert judgment to
estimate the likelihood and magnitude of cost increases. 6. Positive relationship strategy with suppliers adopted.

 Contingency Planning: Develop contingency plans that outline how the 7. Suppliers' schedule aligned with project program.
project will respond to cost escalation events. This may include setting aside a 8. Proper procurement documentation maintained.
reserve fund or including escalation clauses in contracts with suppliers and
contractors. 9. Timely delivery of materials to avoid delays.

 Long-Term Contracts: Consider entering into long-term contracts with 10. Infrastructure for negotiations established.
suppliers to lock in prices and reduce the risk of cost escalation. 11. Work not held up due to procurement delays.
 Inflation Indexing: Use inflation indexing techniques to account for future 12. Regular meetings to address supply difficulties.
inflationary pressures on project costs.
8.2 Project Procurement Management Processes
 Regular Reviews: Continuously monitor and review the project's progress
Procurement planning is vital for setting business objectives and
and market conditions to identify potential cost escalation risks as the project
requirements for works, goods, and services in advance. It aligns business
progresses.
needs with budget and cash flow. Plans can be strategic (3-5 years) or
By taking proactive steps during the planning phase, project managers can better operational (1 year), considering internal and external variables.
prepare for cost escalation risks and minimize their impact on the project's budget and
Strategic plans focus on long-term goals, including capital asset acquisition,
schedule.
funding sources, risks, and timelines. Operational plans cover short-term
requirements, budget, delivery timelines, procurement methods, and risks.
CHAPTER 8: PROJECT PROCUREMENT MANAGEMENT Both apply to public and private sector projects.

Project procurement management is a vital process in project management that For government projects, procurement planning involves:
involves contracting, outsourcing, and obtaining the necessary products and services  Defining procurement requirements.
to complete the project successfully. This includes selecting and coordinating with  Assessing implementation capacity.
external suppliers to procure specific goods or services.  . Determining project implementation timeframe.
45
 Presenting a realistic 3-year budget forecast. Contract Types: Contract types encompass contract structures, pricing, and terms of
 Seeking approval at ministerial and finance levels. payment. Contract structures define the relationships between parties involved in the
 Identifying all items to be procured. project. Pricing mechanisms were previously discussed in Chapter 5. This section
 Establishing sound financial justification. provides an overview of terms of payment.
Operational procurement plans may include requirement documents, risk registers, Terms of Payment: Terms of payment may vary in different directions, involving
resource requirements, project schedule, and cost estimates. commercial, technical, and financial considerations. The employer's terms of payment
should offer reasonable contractual safeguards while putting financial strain on the
Bidding for projects
contractor. This approach has several advantages, such as avoiding restrictions to
involves two aspects: the employer/client's preparations to ensure a fair selection large firms, preventing tender price inflation, promoting small firms with good
process and the bidder's efforts to enhance their chances of winning the contract. The technical ability, and reducing the risk of dealing with an illiquid contractor.
employer must create detailed tender documents describing the scope of work, terms,
Alternatively, the employer may consider paying the contractor upon completion of
evaluation criteria, timelines, and contact information. The type of invitation to bid
the entire work to minimize financing costs and pressure the contractor to finish on
depends on the project's nature and preparation.
time and on budget. Some argue that monthly payments without considering output
From the contractor's perspective, bidding is a three-step process: have led to the proliferation of inefficient contractors.
 Pre-Invitation to Tender: Potential bidders can interact with the employer during Interim payments connected to completion of milestones are generally preferred.
pre-qualification. They should ask relevant questions to showcase their expertise. Delayed payments can result in penalties and have led to the suspension or
Pre-qualification criteria should be stringent to select qualified contractors based termination of projects in developing countries.
on eligibility, experience, litigation history, turnover, and resources.
The use of bonds or guarantees as security for advance payments is important.
 Proposal Preparation and Publication: The bidder prepares tender documents that
Common types of bonds associated with stage or progress payments in projects
meet client requirements and demonstrate competence. This process incurs an
include bid bonds, down payment bonds, performance bonds, retention bonds,
investment of about 5% of the contract cost. The proposals are evaluated against
payment bonds, maintenance bonds, and subcontractor bonds.
predefined criteria, typically following PPRA guidelines for public sector projects.
 Contracts Negotiations: After evaluating tenders, the contract is awarded to the Capture everything:
selected firm, and negotiations take place. There is a 14-day window for
1. Post Bid Review:
complaints against the award. If no complaints are lodged, the contract is signed.
Debriefing can be done with unsuccessful bidders to help improve their  Essential for client and contractor
competitiveness.  Identifies lessons learned
The process of purchasing materials or services after contract award might 2. Contract Types:
have simpler procedures without advertisements to reduce costs.
 Contract structures
Reference: Marsh (2000) provides a comprehensive guide on planning,
preparing, appraising, and placing construction tenders.  Contract pricing
 Terms of payment

Post Bid Review: Once the contract is signed, the supplier focuses on delivering the 3. Terms of Payment:
goods and services required by the client. A post-bid review is essential for both the  Commercial, technical, and financial considerations
client and contractor to identify lessons learned for future exercises.
 Advantages of employer's approach
46
  Timing and penalties for delayed payments 2. Issuing the notice to proceed.
 Use of bonds or guarantees: 3. Receiving and reviewing contractor's drawings.
 Bid bonds 4. Informing the contractor about the Employer's Representative
(Engineer/Architect).
 Down payment bonds
5. Ensuring the contractor submits required bonds.
 Performance bonds or guarantees
6. Facilitating contract implementation and client responsibilities.
 Retention bonds
7. Inspecting, monitoring, and reporting on progress.
 Payment bonds
8. Approving and disapproving time extensions.
 Maintenance bonds
9. Approving and disapproving variations.
 Subcontractor bonds
10. Authorizing progress and installment payments.
Bold Subheadings:
11. Releasing interim certificates.
 Post Bid Review
12. Documenting contract details.
 Contract Types
13. Monitoring and responding to risks.
 Terms of Payment
14. Preparing progress reports.
 Use of Bonds or Guarantees
15. Handling suspension if necessary.
16. Managing termination if necessary.
17. Informing the contractor about payment procedures.
Contract Administration and Management:
18. Handling claims.
After contracts are signed, effective management of contractors becomes crucial to
ensure project success. Regular status updates and progress reviews are necessary to 19. Resolving disputes and managing relationships.
monitor contractor agreements and work performance, ensuring that they meet the
20. Notifying the defects liability period.
contract requirements. While contractors are experts in their fields, it's essential to
track and supervise their work to ensure it proceeds as planned. 21. Releasing retention sum.

Implementing a change control system is vital to handle any necessary changes in the 22. Releasing performance bond.
project. Regular procurement performance reviews, inspections, and audits help 23. Contract closure and handover.
ensure the work progresses smoothly. Performance reporting keeps managers
informed, and a well-established payment system, claims administration, and records Effective contract administration and management are crucial for ensuring project
management are necessary. delivery on time, within budget, and meeting the desired quality standards.

Contract administration involves managing the post-award phase of the contract, Contract Closure and Project Termination:
and the typical activities in a civil engineering construction project include: Project management activities don't end abruptly after successful completion. The
1. Sending award letter to the contractor. closure process involves tying up loose ends, and it is essential to note that not all
47
projects end successfully. There are various reasons for project closure or termination, Additionally, there are certificates issued to record specific significant contractual
including events and authorize the release of retention monies. Some of these certificates
include:
 financial constraints,
 changes in project scope, e 1. Certificate of Substantial or Practical Completion: This certificate is issued to
 conomic or political conditions, record the date when work is substantially completed under building or civil
 natural disasters, engineering contracts.
 conflicts, or c
2. Certificates of Completion of Construction: For process plants or
 ompletion of the project.
mechanical/electrical plants, a set of certificates may be used. These may
Formal announcement: Similar to the formal project charter that initiates a project, a include:
formal closure statement is necessary to announce the end or indefinite interruption
 Taking Over Certificate: Records when the plant has passed tests on
of a project. This announcement stops further expenditure and sets the closure
completion.
procedure in motion. It helps prevent unnecessary spending and ensures the release
of liability for insurance and bonding purposes.  Acceptance Certificate: Indicates the contractor's passing of
performance tests in process plants contracts.
Content of the closure notice:
 Final or Maintenance Certificate: Issued at the end of the defects
The closure notice should include essential details such as the project title, number,
liability period, marking its end and may limit the contractor's
effective closure date, reason for closure, special instructions (e.g., records archiving
liabilities under the contract.
needs), signature authorizing the closure, and distribution to relevant stakeholders.
The end of an engineering and construction contract may be based on one certificate
Post-project expenditure: Even after formal closure, there might be some post-project
of completion or a series of certificates, depending on the nature of the project and
expenditure related to activities like records archiving, documenting as-built
terms agreed between the employer and contractor. It is crucial to identify which
instructions, maintenance, and operating instructions. Such expenses should be
certificate marks the transfer of project ownership to the client and the end of the
treated as a separate work package not chargeable to the project accounts.
contractor's liability.
Project closure is a critical phase that ensures proper documentation, financial closure,
Procurement's Role in Contract Closure:
and a clean handover to the client. It marks the end of the project and sets the stage
for valuable lessons learned and insights that can be applied to future projects. The procurement or contracts management office plays a significant role in contract
closure and is responsible for the custodianship and administration of contractual
documents. During project closure, the procurement office must:
Interim and Completion Certificates:
 Ensure final project cost records are up-to-date, including man-hours,
In government or commercial projects, payments to contractors are typically based on materials, purchased equipment, and wage rates.
certificates issued by the engineer or supervising official. These certificates can be
 Make arrangements for the disposal of surplus material stocks.
categorized as interim or progress certificates, which authorize payments to the
contractor based on the amount certified as due at that stage of the project. It is  Clearly define the final project scope and record any variations, modifications,
important to note that interim certificates are not conclusive evidence and can be and concessions allowed.
modified in subsequent certificates.  Preserve engineering design records and proper documentation for all
purchased equipment.

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  Retain essential purchase schedules and correspondence with suppliers, 7. Lower Cost Levels: Outsourcing can lead to lower cost levels compared to
contractors, or clients related to the project. hiring full-time project managers, especially when organizations require part-
time project management services.
 Maintain a secure archive for project files, preserving crucial documents for
future audits. By leveraging outsourcing, organizations can gain cost-effective access to specialized
expertise, adapt to changing project needs, and benefit from external perspectives
 Identify best practices and lessons learned for future projects.
and experiences to enhance their project management practices
 Prepare and discuss a commissioning report in the project closeout meeting
with stakeholders.
QUESTIONS AND ANSWERS
Effective contract closure ensures a smooth handover, proper documentation, and the
identification of valuable insights for future projects. 1. Distinguish between strategic and operational project procurement plans:
The importance of outsourcing procurement projects can be summarized by the  Strategic Project Procurement Plan: A strategic procurement plan is
following advantages: a long-term plan that typically covers a 3-5 year horizon. It focuses
on acquiring capital assets, exploring funding sources, identifying
1. Cost Flexibility: Outsourcing allows organizations to adjust costs according to
risks, determining appropriate procurement methods, and aligning
their needs. With time-and-materials contracts commonly used in
with the organization's long-term goals.
outsourcing engagements, the organization pays for the actual effort spent
on the project. This offers cost flexibility, especially during volatile times  Operational Project Procurement Plan: An operational procurement
when demand may fluctuate. plan is a short-term plan that typically covers a one-year cycle. It
outlines the specific procurement requirements for the project,
2. Higher Objectivity: External procurement agents are less likely to be
budget outlays, timelines for delivery, procurement methods, and
influenced by office politics and bring an independent and objective
associated risks. It is more detailed and implementation-focused.
perspective to the organization. Their lack of blind spots enables decisions
that bring more value to the organization. 2. Describe the essential contents of an operational project procurement plan:
An operational project procurement plan should include:
3. Authority of External Experts: External specialists are often viewed as
authoritative and knowledgeable, which can help gain support for decisions  Description of procurement requirements
within the organization.
 Budget allocation for procurement activities
4. Exposure to Diverse Experiences: Outsourcing brings experiences from other
 Procurement timeline and milestones
projects and industries, benefiting the organization with valuable insights and
best practices.  Procurement methods and strategies

5. Access to Multiple Providers: Outsourcing allows organizations to negotiate  Risk assessment and mitigation measures
with various providers, promoting competition and resulting in improved  Roles and responsibilities of procurement team members
service quality.
 Supplier evaluation criteria and selection process
6. Exposure to Newer Methodologies: External specialists invest in project
management research and methodologies, providing organizations with  Procurement documentation requirements
access to the latest practices without the need for significant investment.  Terms of payment and financial arrangements
 Procurement performance monitoring and reporting mechanisms
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3. Discuss why open competitive tendering is the most preferred method for 5. Explain why it might be advisable to use procurement agents in complex
procurement of government projects: Open competitive tendering is infrastructure projects: Using procurement agents in complex infrastructure
preferred for government projects due to the following reasons: projects can be advisable because:
 Promotes fair competition and transparency in the procurement  Procurement agents bring specialized expertise and experience in
process. complex procurement processes.
 Ensures that all qualified suppliers have an equal opportunity to bid  They can efficiently handle the intricacies of procurement, such as
for the project. risk assessment, contract negotiation, and supplier selection.
 Helps in obtaining the best value for money for the government.  Their objectivity and independence can help in making unbiased
decisions and avoiding conflicts of interest.
 Reduces the risk of favoritism, corruption, and bias in supplier
selection.  Procurement agents can facilitate effective communication between
the project team and suppliers, streamlining the procurement
 Complies with public procurement regulations and promotes
process.
accountability.
 They can provide valuable insights and best practices from other
 Facilitates the involvement of a wide range of suppliers, promoting
projects, contributing to successful project delivery.
economic growth and development.
 Outsourcing procurement to agents allows the organization to focus
4. Discuss the role of a project manager in ensuring effective procurement in a
on its core competencies and strategic goals.
project: The project manager plays a crucial role in ensuring effective
procurement in a project by: 6. Bonds are used as risk management instruments in many engineering and
construction contracts. Explain the different kinds of bonds commonly used
 Collaborating with stakeholders to define procurement
and list two disadvantages of using bonds: Commonly used bonds in
requirements.
engineering and construction contracts are:
 Developing a procurement plan aligned with project objectives and
 Bid Bonds: Guarantees that the winning bidder will honor their
constraints.
original bid amount and execute the contract.
 Identifying potential suppliers and conducting supplier evaluations.
 Performance Bonds: Ensures that the contractor completes the
 Managing the bidding and selection process in a fair and transparent project according to the contract terms and specifications.
manner.
 Payment Bonds: Guarantees payment to subcontractors and
 Negotiating contracts and ensuring favorable terms and conditions. suppliers for their contributions to the project.
 Monitoring supplier performance and resolving issues.  Retention Bonds: Ensures that the contractor performs any
 Ensuring timely delivery of materials and resources. necessary corrections during the defects liability period.

 Maintaining proper documentation for all procurement activities. Disadvantages of using bonds include:

 Mitigating procurement-related risks and ensuring compliance with  The cost of obtaining bonds can add to the overall project expenses.
regulations.  The process of obtaining bonds can be time-consuming and involve
extensive paperwork.

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7. Explain why it is important to debrief unsuccessful bidders in a procurement  Conditions for advance payments or progress payments.
process: Debriefing unsuccessful bidders is important because:
 Penalties or incentives related to timely completion and quality of
 It promotes transparency and fairness in the procurement process. work.
 It provides unsuccessful bidders with constructive feedback on their  Dispute resolution procedures in case of payment disputes.
proposal, helping them improve in future bids.
10. Identify the point at which title and risk should be transferred from the
 It enhances the organization's reputation and builds trust with contractor to the client in a tea factory construction contract: The point at
suppliers, encouraging them to participate in future opportunities. which title and risk should be transferred from the contractor to the client in
a tea factory construction contract is usually defined in the contract terms
 Debriefing helps unsuccessful bidders understand the selection
and conditions. It typically occurs upon the issuance of a Certificate of
criteria and the strengths and weaknesses of their proposal.
Practical Completion or Substantial Completion. This certificate marks the
 It can help identify any potential flaws or biases in the procurement stage at which the majority of the work is completed, and the facility is ready
process, leading to continuous improvement. for use. After this stage, the client assumes ownership of the facility, and the
8. Identify the documents which constitute the Bid /Tender Documents from contractor's responsibility for risk is reduced.
the Employer: The Bid/Tender Documents from the Employer typically 11. Explain FIVE possible reasons that may cause a project to be closed: Five
include: possible reasons that may cause a project to be closed are:
 Invitation to Bid or Request for Proposals (RFP)  Insufficient funds or financial constraints leading to project
 Instructions to Bidders or Tenderers termination.

 Scope of Work or Statement of Requirements  Changes in economic or political conditions making the project
financially unviable.
 Technical Specifications or Design Drawings
 Fundamental changes in project requirements or objectives that
 Contract Terms and Conditions necessitate project scrapping or restarting.
 Evaluation Criteria and Selection Methodology  External factors, such as natural disasters or conflicts, interrupting
 Forms for Bid Submission, Price Schedules, and Proposal Response project progress.

9. Explain the factors to consider when developing the terms of payment for a  Client decision to delay the project indefinitely pending improved
contract: When developing the terms of payment for a contract, the market conditions or reappraisal.
following factors should be considered:
 Project milestones and deliverables that trigger payment releases. CASE STUDY QUESTION
 Payment schedules and timelines to ensure smooth cash flow for
both parties.
Procedure for implementing the greenhouse project from contract award to the end
 Retention amounts to hold until successful completion of the project of the defect liability period:
or defect liability period.
1. Contract Kick-off:
 Payment methods and currency to be used for transactions.

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  Conduct a project kick-off meeting with all relevant stakeholders,  Conduct a final inspection and obtain client acceptance.
including the client and the project team, to establish project goals,
8. Defects Liability Period:
deliverables, and timelines.
 Address any defects or issues identified by the client during the
 Review the contract terms and conditions to ensure a clear
defects liability period.
understanding of project requirements and obligations.
 Provide necessary repairs or corrections as per contract obligations.
2. Project Planning:
b. Key stakeholders for the greenhouse project:
 Develop a detailed project plan that includes scope, schedule,
resources, and budget.  Milele Farms Ltd (Client)

 Identify and allocate responsibilities to team members and  Project team (Engineering counterparts, construction workers, project
subcontractors. manager)

 Conduct risk assessments and develop risk mitigation strategies.  Suppliers and subcontractors (for materials and services)

3. Procurement and Subcontracting:  Local authorities and regulatory bodies (for permits and approvals)

 Identify and procure necessary materials, equipment, and services.  Third-party consultants or specialists (if required)

 Establish contracts with subcontractors and vendors.  Local community (if the project impacts them)

4. Execution and Monitoring: c. Work Breakdown Structure (WBS) for the greenhouse construction project:

 Begin the construction of the greenhouse complex as per the Note: The WBS would be a hierarchical decomposition of the project scope into
approved project plan. smaller and manageable work packages. The actual WBS would depend on the specific
scope and complexity of the greenhouse project.
 Monitor progress regularly, comparing actual performance against
the project plan. d. Precautions for online contracting:

 Address any issues or deviations from the plan promptly.  Ensure secure communication channels and data encryption to protect
sensitive information.
5. Quality Assurance and Control:
 Use legally binding electronic signatures and authentication methods.
 Implement quality control measures to ensure the construction
meets the required standards.  Clearly define the terms and conditions of the contract to avoid
misunderstandings.
 Conduct regular inspections and testing to verify compliance.
 Keep proper records of all online communications and agreements.
6. Communication and Reporting:
 Verify the identity and legitimacy of the contracting parties.
 Maintain effective communication with the client and stakeholders.
e. Using spreadsheet packages to assess the effects of delays on the project price:
 Provide regular project status updates and progress reports.
 Create a cost estimation spreadsheet that includes all project costs, timelines,
7. Project Completion:
and resource allocations.
 Complete construction and ensure all deliverables meet client
requirements.
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  Utilize scenario analysis to assess the impact of potential delays on project j. Issues to clarify during the closure and handover of the project:
costs by adjusting timelines and resource usage.
 Final acceptance and sign-off on project deliverables by the client.
 Calculate the additional costs associated with each delay scenario and
 Transfer of ownership and responsibility for the greenhouse complex.
present the results to the client.
 Documentation and archiving of all project records.
f. Factors affecting the return on investment (ROI) for the project:
 Final settlement of payments and outstanding invoices.
 Market demand and pricing for the produced horticultural products.
 Handover of operation and maintenance manuals to the client.
 Energy costs and efficiency of the renewable energy technologies used.
 Post-project evaluation and lessons learned for future projects.
 Operational and maintenance costs of the greenhouse complex.
 Export market conditions and potential revenue from sales.
CHAPTER 9: CONTRACT FORMATION
 Any government incentives or subsidies for sustainable agriculture projects.
Procurement and supply contracts may involve various legal terms and concepts that
g. Justification for the contract pricing mechanism for the greenhouse project: The
parties should be familiar with. Here are some key terms and their definitions:
contract pricing mechanism should be a fixed-price contract because:
1. Common Law: Rules of law developed by court decisions rather than through
 The scope of work is well-defined, and there is clarity on project
legislation. Common law principles form the basis of contract law and govern
requirements.
the rights and obligations of parties in a contract.
 It provides cost certainty and risk mitigation for both the client and Faida
2. Damages: A monetary payment or compensation awarded to the injured
Enterprises Ltd.
party in a contract due to the other party's breach of contractual obligations.
 The project is of a manageable size and complexity, making cost estimation Damages aim to put the injured party in the position they would have been in
more accurate. if the contract had been fulfilled as agreed.
 It aligns with the client's budget and financial constraints. 3. Equity: Rules of law developed by the Chancery courts to provide remedies
where the common law may not be sufficient to achieve a just result. Equity
h. Implementation and organization structure for the greenhouse project:
operates alongside common law and allows courts to consider fairness and
Note: The diagram should show the project team hierarchy and reporting lines, justice in specific cases.
including key roles such as project manager, engineering counterparts, construction
4. Injunction: An equitable remedy in the form of a court order that either
workers, and subcontractors.
prevents a party from taking a particular action (prohibitory injunction) or
i. Ways the contract may come to an end: requires a party to perform a specific action (mandatory injunction).
 Successful completion of the greenhouse project as per the contract terms. Injunctions are issued when monetary damages are inadequate or
inappropriate to address a breach of contract or to prevent harm.
 Termination by either party due to breach of contract.
5. Breach of Contract: When one party fails to perform its obligations as
 Client decision to suspend or cancel the project. specified in the contract, it constitutes a breach of contract. Breach may be
 Expiry of the contract duration or fulfillment of contract obligations. minor (partial breach) or material (substantial breach), and the consequences
may vary based on the seriousness of the breach.
 Mutual agreement to terminate the contract.

53
6. Indemnity: A contractual provision where one party agrees to compensate advancements in technology and the widespread use of the internet. In many
the other for specified losses, damages, or liabilities arising from a particular jurisdictions, electronic contracts are legally valid and enforceable, as long as
event or situation. there is evidence of the parties' intention to create a contract electronically.
7. Liquidated Damages: A pre-agreed fixed sum or formula specified in the
contract to be paid as damages in case of a specific breach, usually related to
The essential elements of a valid commercial contract are as follows:
project delays or failure to meet performance criteria.
1. Offer and Acceptance: A valid contract requires a clear and definite offer
8. Force Majeure: A clause in the contract that excuses performance or allows
made by one party and an unconditional acceptance of that offer by the
for suspension in cases of unforeseen events or circumstances beyond the
other party. The offer must be communicated to the offeree, and the
parties' control, such as natural disasters, acts of war, or government actions.
acceptance must mirror the terms of the offer without any modifications.
9. Time is of the Essence: A contractual provision stating that punctual
2. Lawful Consideration: Consideration refers to something of value exchanged
performance is an essential element of the contract. Failure to meet specified
between the parties as part of the contract. It can be in the form of money,
deadlines may be treated as a material breach.
goods, services, or promises to do or refrain from doing something. The
10. Entire Agreement Clause: A provision in the contract stating that the written consideration must be lawful, meaning it must not involve illegal activities or
contract contains the entire agreement between the parties and supersedes go against public policy.
any prior oral or written agreements, understandings, or negotiations.
3. Intention to Create Legal Relations: For a contract to be enforceable, the
parties must have an intention to create a legally binding agreement. Social
agreements or agreements between family members are generally presumed
Forms of contracts
to lack this intention unless evidence suggests otherwise.
can be categorized based on their mode of creation and expression. Here are
4. Capacity to Contract: All parties entering into the contract must have the
three common forms of contracts:
legal capacity to do so. This means they must be of legal age (usually 18 years
1. Oral Contracts: An oral contract is an unwritten agreement made verbally or older) and of sound mind. Minors, mentally incapacitated individuals, and
between parties. Although at common law, oral contracts can be legally intoxicated persons may lack the capacity to enter into a contract.
enforceable as long as there is evidence of the agreement, they can be
5. Free Consent: The parties must enter into the contract of their own free will,
challenging to prove in court due to the lack of written documentation. In
without any undue influence, coercion, or misrepresentation. If one party is
some jurisdictions and for certain types of contracts, written contracts may
forced or deceived into entering the contract, it may be voidable.
be required to ensure enforceability and clarity.
6. Lawful Purpose: The purpose of the contract must be legal and not against
2. Written Contracts: A written contract is a formal agreement in which all the
public policy. Contracts to engage in illegal activities or to harm others are
terms and conditions of the contract are reduced to writing and signed by the
not enforceable.
parties involved. Written contracts provide clear documentation of the
agreed-upon terms and help prevent misunderstandings or disputes. They The legal rules regarding offers in contract law are as follows:
are common in complex and significant transactions or projects where parties
1. Definite Offer: An offer must be clear, definite, and specific in its terms. It
want to ensure clarity and certainty.
should leave no ambiguity or uncertainty about the terms and conditions of
3. Electronic Contracts: Electronic contracts are contracts that are formed and the contract. Vague or incomplete offers may not be considered valid.
executed electronically, such as through email, online forms, or electronic
marketplaces. These contracts are becoming increasingly prevalent with

54
Example: A tour agency advertises a holiday package with clear terms and a payment It is important to understand these rules to determine the validity and enforceability
deadline. Anyone who sends payment by the specified date is deemed to have of an offer in a contract. An offer that meets all the essential elements and legal
accepted the offer. requirements can lead to a legally binding contract once accepted by the offeree.
2. Communication: An offer must be communicated to the offeree for it to be Acceptance
valid. The offeree cannot accept an offer they are not aware of.
is a crucial element in forming a valid contract. Here are the legal rules regarding
Example: In the case of lost-and-found items, an offer to give a reward for returning a acceptance in contract law:
lost book must be communicated, and the person who finds the book must be aware
1. Absolute and Unqualified Acceptance: Acceptance must be a clear and
of the reward to claim it.
unqualified agreement to the terms of the offer. Any modifications or
3. Invitation to Treat: Advertisements or displays of goods and services for sale changes to the offer in the acceptance would be considered a counter-offer
are generally considered invitations to treat, not offers. They are an invitation and would terminate the original offer.
for potential buyers to make offers, and the seller can accept or reject those
Example: If an offer is made to buy a horse for £1000, but the offeree responds with
offers.
an acceptance to buy the horse for £950, it would not be a valid acceptance but a
Example: A store displaying goods for sale is an invitation to treat. When a customer counter-offer.
presents the goods at the cashier, they make an offer to buy, and the cashier's
2. Silence does not amount to Acceptance: In general, acceptance must be
acceptance completes the contract.
communicated to the offeror. Silence or mere inaction does not constitute
4. Certainty of Terms: An offer must contain certain and definite terms that are acceptance.
essential to the contract. Acceptance must be of the exact terms of the offer;
Example: If someone makes an offer to sell their car, and the offeree does not
any modifications would constitute a counter-offer.
respond, there is no valid acceptance, and no contract is formed.
Example: If a contract for the sale of goods does not specify the price, but states it will
3. Irrevocability of Acceptance: Once a valid acceptance is made, it cannot be
be "the market price," the contract may still be valid because the market price can be
revoked unless the offer allows for revocation. Once the parties have reached
determined.
an agreement, there is a binding contract, and the offeror cannot withdraw
5. Revocation: An offer can be revoked by the offeror at any time before the offer.
acceptance. Once an acceptance has been posted, the offer cannot be
4. Timely Acceptance: Acceptance must be made within the time prescribed in
revoked because the contract is complete.
the offer or within a reasonable time if no specific timeframe is stated. What
Example: If an offer to sell timber is not accepted within a reasonable time, the offer is considered a "reasonable time" depends on the circumstances of the case.
may lapse, and the offeror is no longer bound by it.
Example: If an offer states that it must be accepted within three days, the offeree
6. Request for Further Particulars: A request for more details about an offer must accept within that timeframe, or the offer may lapse.
does not destroy the offer unless it seeks to change the terms. It is not
5. Postal Acceptance Rule: The postal acceptance rule is an exception to the
binding on the offeror to respond to such requests.
general rule that acceptance must be communicated. If acceptance is sent by
Example: If a buyer requests further details about a product before accepting the post (mail), it becomes effective as soon as it is posted, regardless of whether
offer, the offer remains valid unless the buyer's request alters the terms of the original the offeror has received it.
offer.
Example: If an offer is made, and the offeree posts their acceptance by mail, the
acceptance is considered complete and effective upon posting.

55
It is important to follow these legal rules for acceptance to ensure the formation of a Example: If a debtor pays only part of the debt owed, the creditor can still pursue the
valid contract. If the acceptance is not in accordance with these rules, there may be no balance unless they have agreed to accept the partial payment in full satisfaction of
legally enforceable contract, and the parties would not be bound by any obligations the debt.
under the purported agreement.
These legal rules are important to ensure that contracts are formed based on genuine
Consideration and valid consideration, and parties are not unfairly bound by unsupported
agreements.
is an essential element in the formation of a legally binding contract. It refers to
something of value given by one party in exchange for the promise or performance of Privity
the other party. Consideration is what makes a promise legally enforceable and
of contract is a fundamental principle in contract law that dictates that only parties
distinguishes a contract from a mere gift or gratuitous promise.
who are directly involved in a contract can enforce its terms or be held liable for its
Legal rules related to consideration in contract law include: obligations. The rule of privity of contract prevents third parties from enforcing
contractual rights or assuming contractual obligations, even if they may benefit from
1. Sufficiency of Consideration: Consideration must have some legal value, but
the contract's performance.
it does not necessarily have to be adequate or proportionate to the value of
the promise made. Courts are not concerned with the fairness or economic Key points about privity of contract include:
value of the consideration; they only consider whether there is a bargained-
1. Only Parties Can Sue: Only the parties who have provided consideration
for exchange of value between the parties.
(usually money, goods, or services) and have entered into a contract can sue
Example: If someone sells a valuable item for a very low price, the consideration to enforce its terms. Third parties, even if they stand to gain from the
(money) may be insufficient compared to the item's worth, but it is still legally valid as contract, cannot bring a lawsuit based on that contract.
long as there is a genuine exchange.
2. Exceptions to Privity Rule: There are certain exceptions to the privity rule
2. Performance of Existing Duty: If a party is already bound by a pre-existing where third parties may be able to enforce a contract. Some common
contractual or legal duty to perform an act, the performance of that duty exceptions include:
cannot be considered valid consideration for a new promise.
a. Assignment: If one party transfers its rights or obligations under a contract to a third
Example: A contractor cannot demand additional payment for completing work party, that third party becomes entitled to enforce the contract.
already included in the original contract since they were already obligated to do it.
b. Beneficiary Contracts: Contracts can be made for the benefit of third parties,
3. Performance of Public Duty: A person cannot claim consideration for allowing them to enforce the contract if they are identified as beneficiaries in the
performing a duty imposed by law or public duty. However, if someone goes contract.
beyond their legal obligations, such extra performance may be considered
c. Agency Relationships: Agents can enforce contracts on behalf of their principals, but
valid consideration.
they are not personally liable unless they assume the obligations explicitly.
Example: A police officer cannot demand payment for performing regular duties but
d. Trusts: Trust beneficiaries may be able to enforce contracts related to the trust
may be entitled to consideration if they provide extra security beyond their usual
property or assets.
duties.
3. Lack of Privity Defense: The privity of contract defense can be raised in cases
4. Part Payment of Debt: Part payment of a debt, without any additional
where a third party attempts to enforce a contract. The lack of privity
consideration, is generally not sufficient to discharge the full debt. Unless
between the third party and the parties to the contract is used as a defense
there is an agreement to the contrary or a composition agreement, full
to dismiss the third party's claim.
payment of the debt is still required.

56
 4. Promissory Estoppel: In some cases, equitable doctrines like promissory contract to determine the intention of the parties with respect to each
estoppel may come into play to protect third parties who have relied on a element.
promise made by one of the contracting parties.
6. Presumption Rebutted in Certain Circumstances: In certain situations, the
Privity of contract courts may infer an intention to create legal relations even in domestic
arrangements. For example, in cases of separation or divorce, where there is
is a crucial concept in contract law, ensuring that the rights and obligations arising
a written agreement and both parties have acted on its terms, the courts may
from a contract are limited to the parties directly involved in its formation. It provides
uphold the agreement.
clarity and certainty in contractual relationships while protecting parties from
unexpected liabilities to third parties. In summary, the intention to create legal relations is a key factor in determining the
enforceability of a contract. While there are general presumptions based on the
Intention to create legal relations
nature of the relationship, these presumptions can be overcome by evidence showing
is a crucial aspect of contract law, and it determines whether parties intend their the true intention of the parties.
agreements to be legally binding. The general principle is that in commercial or
Capacity to contract is an essential aspect of contract law, ensuring that the parties
business arrangements, there is a presumption that the parties intend to create legal
involved have the legal ability to enter into binding agreements. Here are the key
relations, while in domestic or social settings, there is a presumption against such an
points about capacity to contract:
intention.
1. Minors: Minors, individuals under the age of 18 (or the age of majority in the
Key points about intention to create legal relations include:
relevant jurisdiction), generally lack the capacity to enter into contracts.
1. Presumption in Commercial Contracts: In commercial contracts, the law Contracts with minors are voidable at the option of the minor, meaning they
presumes that the parties intend to be legally bound by their agreements. can choose to enforce the contract or void it when they reach the age of
This means that if there is a dispute or breach of contract, the affected party majority. However, certain contracts with minors are enforceable, such as
can seek legal remedies through the court. contracts for necessaries (essential goods or services for the minor's well-
2. Presumption in Social or Domestic Contracts: In social or family relationships, being).
the law generally presumes that the parties do not intend to create legal 2. Intoxicated or Mentally Incapacitated Persons: Contracts entered into by
relations. This means that agreements made in a social or domestic context intoxicated individuals or those not of sound mind (mentally incapacitated)
are usually not legally enforceable. are also voidable. If the person regains sobriety or mental capacity and
3. Overcoming the Presumption: The presumption against legal relations in ratifies the contract, it becomes binding. However, if the person remains
social contracts can be overcome if there is sufficient evidence to show that incapacitated, the contract remains void.
the parties did intend to be legally bound. This evidence may include a 3. Bodies Corporate (Corporations): The capacity of a corporation to contract is
written contract, formal language in the agreement, or the conduct of the determined by its articles of association or constituting instrument. A
parties indicating a serious intention to be bound. corporation can only enter into contracts within the scope of its authorized
4. Honorary Agreements: Sometimes, parties may include an "honour clause" or activities as outlined in its articles. Any contract beyond its powers is
a statement in the contract expressly stating that it is not intended to be considered ultra vires and unenforceable. However, modern laws, such as the
legally binding. In such cases, the courts will generally uphold the parties' Companies Act 2015, have broadened the scope of a company's capacity by
intentions and not enforce the agreement legally. allowing companies to engage in any lawful business, unless otherwise
restricted.
5. Mixed Contracts: Some contracts may involve both social and commercial
elements. In such cases, the courts may analyze the specific elements of the 4. Ultra Vires Doctrine: Historically, the ultra vires doctrine was strictly applied,
prohibiting companies from engaging in activities beyond those explicitly
57
 stated in their founding documents. Today, the doctrine has been largely and are usually considered void, but exceptions may apply in some cases. It's
relaxed, allowing companies more flexibility in conducting business, as long important to understand these distinctions to ensure compliance with contract law
as it aligns with the company's objectives and the law. and protect the rights of parties involved.
5. Contracts with Unincorporated Associations: Unincorporated associations vitiating factor of mistake in contract law, along with relevant case examples. Mistake
lack legal personality, and their capacity to contract may be limited. Contracts is an important concept as it can render a contract void or voidable based on the
made by an unincorporated association may be enforceable if it benefits all nature of the mistake and its impact on the agreement between the parties. Let's
the members and the contract does not go against public policy. summarize the key points:
In summary, capacity to contract ensures that parties have the legal ability to enter 1. Common Mistake: A common mistake occurs when both parties are mistaken
into binding agreements. Minors, intoxicated or mentally incapacitated individuals, about a fundamental aspect of the contract. The mistake must concern a
and corporations must be mindful of their contractual capacity, and contracts must basic assumption that goes to the root of the contract, such as the existence
align with the authorized activities of the parties involved. or identity of the subject matter. If such a mistake exists, the contract may be
deemed void.
concepts of void, voidable, and illegal contracts. Let's summarize them for clarity:
2. Mutual Mistake: A mutual mistake arises when both parties are speaking at
1. Void Contract: A void contract is one that lacks the essential elements of a
cross-purposes, and there is no genuine agreement due to the conflicting
valid contract and is deemed non-existent in the eyes of the law. It is not
intentions or meanings of the parties. If a contract results from such a mutual
enforceable, and neither party can claim any rights or remedies under it. For
misunderstanding, it may be considered void.
example, a contract that is missing mutual consent or communication of
acceptance, as seen in Felthouse v Bindley, can be considered void. 3. Unilateral Mistake: A unilateral mistake occurs when only one party is
mistaken about a particular aspect of the contract. Generally, a unilateral
2. Voidable Contract: A voidable contract is initially valid on its face, but certain
mistake is not sufficient to render a contract void, especially if the objective
factors make it vulnerable to being declared void if one of the parties
meaning of the contract can be ascertained. However, in certain
exercises their right to void the contract. The contract remains binding until it
circumstances, such as when fraud is involved or there is a mistaken identity,
is avoided by the injured party through legal action. Common factors that can
the contract may be set aside.
make a contract voidable include misrepresentation, mistake, or duress.
Under certain circumstances, public procurement contracts entered into with It's important to note that the effect of a mistake on a contract depends on the type of
parties having conflicts of interest, as defined in the Public Procurement and mistake and its significance to the agreement. Mistake is a complex area of contract
Asset Disposal Act 2015, may also be considered voidable. law, and each case is analyzed based on its specific facts and circumstances.
3. Illegal Contract: An illegal contract is one that involves an illegal purpose or By understanding the different types of mistakes that can affect contracts, parties can
activity, such as a contract to commit a crime or engage in illegal trade. be more cautious and ensure that they have a genuine meeting of minds when
Generally, illegal contracts are considered void and unenforceable. However, entering into agreements. Additionally, legal recourse may be available for parties
there are exceptions where a court may still allow recovery of money or who find themselves in contracts impacted by material mistakes.
damages, even though the contract is illegal. This typically occurs when the
misrepresentation in contract law,
illegality is unrelated to the performance of the contract, and the court
believes that enforcing the contract's illegality would be contrary to public including its types and corresponding remedies. Misrepresentation is a crucial aspect
policy. of contract law as it deals with the accuracy and truthfulness of the statements made
during the contract formation process. Here's a summary of the key points:
In summary, while void contracts are inherently invalid and unenforceable due to a
lack of essential elements, voidable contracts are initially valid but can be voided by 1. Misrepresentation: Misrepresentation refers to a false statement made by
one of the parties under certain conditions. Illegal contracts involve illegal activities one party to induce the other party to enter into a contract. The statement
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 can be either a statement of fact or an omission of material information, and the other. As a result, the influenced party may not freely give their consent,
it must have actually induced the misled party to enter into the contract. and the contract may be voidable.
2. Innocent Misrepresentation: Innocent misrepresentation occurs when a false 4. Illegality: Illegality arises when a contract is forbidden by law or involves
statement is made honestly, with no intention to deceive. In such cases, the engaging in criminal or tortious activities. Such contracts are unenforceable,
misled party can seek rescission of the contract, returning the parties to their and in some cases, the parties may face criminal sanctions for entering into
pre-contractual positions, if possible. illegal agreements.
3. Fraudulent Misrepresentation: Fraudulent misrepresentation happens when It is important for parties to be aware of these vitiating factors and avoid engaging in
a false statement is made knowingly or without belief in its truth, with the any actions that could undermine the genuine consent required for a valid contract.
intent to deceive the other party. In cases of fraudulent misrepresentation, Additionally, it is crucial to ensure that the contract's purpose and terms comply with
the misled party can pursue legal action for deceit. the law to avoid the contract being deemed illegal and unenforceable.
4. Negligent Misrepresentation: Negligent misrepresentation arises when a By understanding these vitiating factors and their implications, parties can protect
party owes a duty of care to another party and fails to exercise that duty, themselves from entering into contracts that may later be invalidated by a court or
resulting in the other party's loss. In such situations, the misled party may result in legal consequences.
seek damages for negligence.
types of procurement and supply contracts. Here's a summary of the key points:
It is essential for parties entering into contracts to be cautious about the information
1. One-off Purchase: A singular or sole purchase of goods or services, often for
they provide and rely upon during negotiations. Full and accurate disclosure of
items that do not require regular repeat purchases. It is essential to consider
material facts is necessary to ensure that the contract is valid and enforceable.
continuing obligations and implied terms for goods or services that may need
Moreover, if any misrepresentation occurs, the affected party should be aware of the
after-sales service or warranties.
available remedies, depending on the nature of the misrepresentation.
2. Framework Agreement: A generalized agreement between buyers and sellers
By understanding the different types of misrepresentation and their legal implications,
that sets out terms and conditions for future call-off contracts. Useful for
parties can protect themselves from potential disputes and ensure that they have a
procuring large quantities of standardized goods or services with
valid and fair contract in place.
indeterminate quantities.
duress, economic duress, undue influence, and illegality in contract law. These
3. Mini Competition: A selection process within a framework agreement where
vitiating factors can invalidate a contract or render it unenforceable due to the lack of
several suppliers are identified, and a tender process is conducted among
genuine consent or the unlawful nature of the agreement. Here's a summary of the
them for a specific call-off contract.
key points:
4. Call-offs: Individual agreements made under a framework agreement for
1. Duress: Duress occurs when one party uses physical force or threatens to use
specific quantities of goods or services. These contracts are essentially a "call"
force to compel the other party to enter into a contract. The use of such force
for the supply of specified items.
undermines the genuine consent required for a valid contract.
5. Services Contract: A contract for the purchase or acquisition of services
2. Economic Duress: Economic duress is a modern extension of duress, where a
rather than goods. It can include specialized technical skills or support
party abuses its dominant economic position to coerce the other party into
services like cleaning or security services.
the contract. This abuse of economic power can also invalidate the consent of
the coerced party. 6. Contracts for Hire and Lease: Hire purchase contracts involve taking
possession of goods while paying installments until ownership is transferred.
3. Undue Influence: Undue influence arises when there is a special relationship
Lease contracts do not involve ownership transfer and are purely for use.
between the parties, leading to one party exerting significant influence over
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 7. Outsourcing: Acquiring goods or services from external parties for non-core are only allowed within the limits set by the Act, and they are usually subject to
activities, often done to reduce operational costs. A service level agreement specific procedures and approvals.
should be in place to protect against non-performance.
By having clear and standardized tender documents, public procurement contracts
8. Standard Form Contracts: Also known as "contracts of adhesion," they are aim to avoid disputes over conflicting terms and ensure consistency and fairness in the
imposed on parties by the stronger party without room for negotiation. contracting process.
Examples include insurance contracts and contracts of carriage.
The terms of a contract refer to the specific provisions and conditions that govern the
9. Sub-contract: A contract entered into between the main contractor and a agreement between the parties. These terms can be broadly classified into conditions
party hired by the main contractor to perform specific tasks or provide and warranties, as well as express and implied terms.
services as part of a larger project.
1. Conditions and Warranties:
Understanding these various types of procurement and supply contracts is essential
 Condition: A condition is a fundamental term of the contract that goes to the
for parties involved in these transactions to ensure that their agreements are clear,
root of the agreement. If a condition is breached, the innocent party may
enforceable, and meet their specific needs and requirements.
treat the contract as repudiated and claim damages. In essence, a breach of a
The "battle of the forms" condition allows the innocent party to end the contract.
Refers to a situation in contracting where both the buyer and seller use their  Warranty: A warranty, on the other hand, is a less significant term of the
respective standard form contracts when entering into an agreement. These standard contract. If a warranty is breached, the innocent party can claim damages but
form contracts may contain specific terms and conditions, and sometimes they may be cannot terminate the contract. The contract remains in force.
in conflict with each other.
2. Express and Implied Terms:
For example, a buyer may use its standard purchase order forms, while the seller
 Express Terms: These are terms that have been explicitly agreed upon by the
supplies the goods or services under the cover of its delivery note, both containing
parties either in writing or orally during the negotiation and formation of the
different terms and conditions. These conflicts in terms can create ambiguity and
contract. They are directly stated and recorded.
disputes regarding the enforceability of the contract.
 Implied Terms: Implied terms are not explicitly stated in the contract but are
In the context of common law jurisdictions, including commercial transactions, the
automatically included by law or trade customs to fill gaps or address
courts apply an offer-and-acceptance analysis. The general rule is that the last shot
necessary matters not expressly covered by the parties.
fired, or the last set of documents presented, will determine the terms that prevail. In
other words, the party that submits its standard form last will have the upper hand, Terms can be implied in two ways: a. By Trade Custom (Trade Usage): Established
and its terms will govern the contract. market practices that are commonly followed in a particular industry are recognized
and enforced by the courts unless the parties clearly state otherwise in their contract.
However, in the case of public procurement contracts regulated by the Public
b. By Statute: Some terms may be implied by law through statutes passed by the
Procurement and Asset Disposal Act 2015 (or similar legislation in other jurisdictions),
legislature. These statutes are enacted for specific policy reasons and can add terms to
the battle of the forms issue is minimized. This is because public procurement
the contract that the parties must adhere to, unless expressly excluded.
contracts are tightly regulated, and they must conform to the tender documents
provided by the procuring entity. These tender documents lay out the basic terms and It is essential to understand the difference between conditions and warranties, as well
conditions of the contract, leaving less room for conflicts arising from different as express and implied terms, as they can significantly impact the rights and
standard form contracts. obligations of the parties involved in a contract. Furthermore, parties should be aware
of the applicable laws and regulations that may automatically imply certain terms into
The Act typically prohibits significant variations from the terms set out in the request
their contracts.
for proposals, terms of reference, or the price quoted in a successful bid. Variations
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QUESTIONS AND ANSWERS because it distinguishes a contract from a gift. The basic rules governing
consideration are as follows:
1. Elements of a Contract: To be legally enforceable, a contract must have the
following essential elements:  Consideration must be real, not illusory or past.
 Offer: One party must make a clear and definite proposal to another party,  It must move from the promisee (the person to whom the promise is made).
expressing a willingness to enter into a contract.
 Consideration can be in the form of an act, a forbearance (refraining from
 Acceptance: The other party must accept the offer, unconditionally and doing something), or a return promise.
exactly as it was made, creating a meeting of minds.
 The value of consideration is not relevant; it can be minimal or substantial.
 Consideration: There must be something of value exchanged between the
Consideration is important in contract law because it indicates that the parties have
parties, which can be money, goods, services, or a promise to do something
bargained and exchanged something of value to create a legally binding agreement. It
or refrain from doing something.
serves as evidence of the parties' intention to be bound by their promises.
 Intention to Create Legal Relations: Both parties must intend for their
4. Vitiating Factors in Contracts: Vitiating factors are elements that invalidate or
agreement to have legal consequences and be bound by it.
vitiate a contract, rendering it unenforceable. These factors include:
 Capacity: Each party must have the legal capacity to enter into the contract,
 Misrepresentation: A false statement that induces a party to enter into a
meaning they are of sound mind and are not minors or under undue
contract.
influence.
 Mistake: An erroneous belief about a material fact that undermines the
 Genuine Consent: The agreement must be entered into voluntarily and not
agreement.
due to duress, undue influence, misrepresentation, or mistake.
 Duress: The use of force or threats to compel a party to enter into a contract
 Legal Purpose: The contract's object and purpose must be lawful and not
against their will.
against public policy or illegal.
 Undue Influence: A special relationship where one party exerts excessive
If any of these essential elements are missing or defective, the contract may be
influence on the other, leading to an unfair contract.
considered unenforceable or void.
 Illegality: Contracts with unlawful or illegal purposes are unenforceable.
2. Offer and Invitation to Treat in a Tender: In a tender process, an invitation to
treat is an invitation for contractors or suppliers to submit their bids or If any of these vitiating factors are present in a contract, the innocent party may have
proposals. It is not an offer but an invitation to make offers. The tendering the option to avoid the contract or claim damages.
party is inviting contractors to indicate their interest in providing goods or 5. Express and Implied Terms of Contract:
services, and it is up to the tenderers to make offers through their bids.
 Express Terms: These are explicitly agreed upon and stated by the parties in
On the other hand, the bid submitted by a contractor is considered an offer. By writing or orally during the contract negotiation. They can be found in the
submitting the bid, the contractor is making an offer to the party inviting the tender. contract document or other written communications between the parties.
The inviting party can then either accept or reject the offer, resulting in a binding
contract if the offer is accepted.  Implied Terms: These are terms that are not explicitly stated but are
automatically included by law or trade customs to fill gaps or address
3. Consideration in Contract: Consideration refers to something of value that necessary matters not expressly covered in the contract.
each party gives or promises to give to the other party in exchange for the
other party's promise or performance. It is an essential element of a contract

61
Express terms take precedence over implied terms, and the court will interpret the bound by the contract's terms. The innocent party can treat the contract as
contract based on the actual words used by the parties. Implied terms are generally terminated and sue for damages.
considered as part of the contract due to statutory laws or trade practices.
 Rescission: Rescission is the act of canceling a contract, rendering it void ab
6. Priority of Contractual Documents: In a practical contracting scenario, various initio, as if it never existed. It is typically done when there is a vitiating factor
documents, such as tender documents, terms and conditions, specifications, present, such as misrepresentation, mistake, or undue influence.
and addenda, may form the terms of a contract. The usual priority attached
9. Remedies for Negligent Misrepresentation: The remedy for negligent
to these contractual documents for purposes of legal interpretation is as
misrepresentation is damages for negligence. If a party negligently makes a
follows:
false statement that induces another party to enter into a contract, the
 Specific Clauses Over General Clauses: Specific terms that address particular injured party can sue for damages to recover any losses suffered due to the
issues will take precedence over general terms. false statement. The damages aim to put the innocent party in the position
they would have been in had the negligent misrepresentation not occurred.
 Later Documents Over Earlier Documents: If there is a conflict between two
documents, the one issued later in time prevails. CASE STUDY
 Primary Contract Over Ancillary Documents: The main contract will generally Whose terms prevail? X Ltd made an offer to manufacture some machinery for Y Ltd
take precedence over ancillary or supporting documents. for 5,000,000 Shillings. The offer was made on X’s standard form terms of offer, which
included a clause that the price was variable upwards. Y Ltd responded to make the
7. Advantages and Disadvantages of Standard Form Contracts in Project
order on its own standard forms, under which there was a clause to the effect that the
Procurement: Advantages:
price quoted was fixed. The order form included a detachable slip against which X’s
 Efficiency: Standard form contracts save time and resources by providing responsible officer was to sign and return to Y as evidence of acceptance. X Ltd.’s
predefined terms and conditions. managing director signed and returned the slip and X proceeded with the
 Certainty: Parties are familiar with the terms, reducing the likelihood of manufacture. The cost of inputs went up, as a result of which X Ltd wrote to Y
disputes. informing Y of its intention to vary the contract price, in accordance with its (i.e., X’s)
standard form terms. Y Ltd wrote back rejecting the upwards price variation, and
 Consistency: Standard form contracts ensure consistency in contract asserted that its terms were the true contractual terms. Describing the rules governing
administration. the formation of contracts, discuss the terms on which the parties’ agreement would
 Risk Allocation: They often contain balanced risk allocation provisions. be determined.

Disadvantages: ANSWER

 Lack of Tailoring: They may not fully address unique project requirements. In this case study, there is a "battle of the forms" scenario, where both X Ltd and Y Ltd
have exchanged standard form contracts containing conflicting terms. X Ltd made the
 Imbalance: Standard form contracts may favor one party over the other. initial offer on its standard form terms, and Y Ltd responded with its order on its own
 Complex Language: Some standard form contracts use complex language that standard form terms. Both parties proceeded with the transaction, with X Ltd's
may be difficult for non-legal professionals to understand. managing director signing and returning the detachable slip from Y Ltd's order form as
evidence of acceptance.
8. Repudiation and Rescission of a Contract:
The general rule for resolving a "battle of the forms" situation is to apply the "last
 Repudiation: Repudiation occurs when one party indicates an intention to no
shot" rule. According to this rule, the last set of terms introduced before the
longer perform their obligations under the contract. It is a clear refusal to be
performance of the contract will prevail and become the binding terms of the

62
contract. In this case, Y Ltd's order form was the "last shot" as it was sent in response does not involve the binding of the bailor by the bailee's actions in dealings with third
to X Ltd's offer and was accepted by X Ltd's managing director. parties. Instead, it is a relationship based on the safekeeping or use of the property.
However, there is an exception to the last shot rule, known as the "mirror image" rule. The key elements of a bailment contract are:
This rule states that acceptance of an offer must be unconditional and must match the
1. Delivery of Possession: The bailor must deliver actual or constructive
terms of the offer exactly. If Y Ltd's order form contains additional or different terms
possession of the personal property to the bailee. The property remains the
from X Ltd's offer, it would not be considered a valid acceptance, and the original offer
bailor's property, and the bailee merely holds it for a specific purpose.
from X Ltd would remain the binding contract.
2. Voluntary: Bailment must be voluntary, meaning that the bailor must willingly
In the case study, X Ltd's offer included a clause that the price was variable upwards,
deliver the property to the bailee. If the transfer of possession is involuntary
whereas Y Ltd's order form had a clause stating that the price quoted was fixed. This
or forced, it will not be considered a bailment.
difference in terms regarding the contract price creates a conflict.
3. Agreement: There must be an agreement, either express or implied, between
Based on the general rules of contract formation, Y Ltd's order form would not be
the bailor and the bailee regarding the terms and conditions of the bailment.
considered a valid acceptance if the "mirror image" rule is strictly applied. This would
This agreement may be oral or in writing.
mean that X Ltd's original offer with the variable price clause would be the binding
contract. Types of bailment:

However, in practical situations, courts may not strictly apply the "mirror image" rule 1. Bailment for the Sole Benefit of the Bailor: In this type of bailment, the bailee
and may look at the conduct of the parties to determine their intentions. The fact that does not receive any benefit or compensation for holding the property. The
X Ltd's managing director signed and returned the detachable slip from Y Ltd's order bailee has a duty of utmost care to protect the property.
form can be seen as an act of acceptance of Y Ltd's terms. 2. Bailment for the Sole Benefit of the Bailee: Here, the bailor does not receive
In such cases, the court may consider whether the parties intended to enter into a any benefit, and the bailee receives the full benefit of using the property. The
contract despite the conflicting terms and whether they had a meeting of minds on bailee owes a duty of extraordinary care to protect the property.
the essential elements of the agreement. If it is determined that the parties intended 3. Mutual Benefit Bailment: In this type of bailment, both the bailor and the
to proceed with the transaction despite the conflicting terms, the court may enforce bailee receive some benefit from the arrangement. The bailee owes a duty of
the contract based on the common agreed terms, or it may apply the doctrine of reasonable care to protect the property.
"battle of the forms" and resolve the conflict based on the last shot rule.
Common examples of bailment include:
Ultimately, the determination of the terms on which the parties' agreement would be
based will depend on the court's interpretation of the parties' conduct and intentions.  Leaving your car at a valet parking service.
It is advisable for parties to clearly communicate and negotiate their terms to avoid  Storing your belongings in a rented storage unit.
ambiguity and potential disputes.
 Loaning your laptop to a friend for a specific purpose.
 Leaving your coat at a coat check in a restaurant or event venue.
CHAPTER 10: CONTRACTUAL RIGHTS AND OBLIGATIONS
10.1.2 Bailment Bailment is another type of contractual relationship involving two
parties: the bailor and the bailee. Bailment occurs when the bailor delivers possession Agency by necessity
of personal property to the bailee, with the understanding that the property will be Agency by necessity arises in situations where there is an urgent need to act on behalf
returned or disposed of according to the bailor's instructions. Unlike agency, bailment of the principal, and the agent does so to protect the principal's interests. The

63
situation usually involves emergencies or unforeseen circumstances where the  Implied Authority: Implied authority refers to the authority that is not
principal cannot be consulted or is incapable of giving instructions. expressly stated but is necessary and incidental to carry out the agent's
express authority. It allows the agent to perform acts that are customary,
For example, if a ship's captain encounters a storm and needs to make a decision to
usual, or reasonably necessary to fulfill the agent's express authority. For
save the ship and cargo, he may act on behalf of the ship's owner (the principal) in the
example, a managing director of a company may have implied authority to
best interests of preserving the property. In such cases, the captain would be
enter into contracts related to the company's regular business operations.
considered an agent by necessity.
2. Apparent or Ostensible Authority
For agency by necessity to be established, the following conditions must be met:
Apparent authority arises when the principal creates the impression to a third party
1. Actual Necessity: There must be a real and immediate need to act in the
that an agent has the authority to act on their behalf. It is based on the principle of
principal's best interests due to unforeseen circumstances or emergencies.
estoppel, where the principal is estopped from denying the agent's authority if the
2. Absence of Instructions: The agent must have made reasonable efforts to third party reasonably relies on the appearance of authority. The following conditions
consult the principal or follow instructions but could not do so due to the must be met for apparent authority to exist:
urgency of the situation.
 Representation by Principal: The principal must make a representation, either
3. Protection of Principal's Interests: The agent's actions must be in the best by words or conduct, to the third party that the agent has the authority to act
interests of the principal and for the purpose of protecting the principal's on their behalf.
property or interests.
 Reasonable Reliance: The third party must reasonably rely on the
4. Good Faith: The agent must act in good faith and not for personal gain. representation made by the principal.
It is important to note that agency by necessity is a temporary and limited agency  Change of Position: The third party must change their position or take some
relationship. Once the emergency or necessity ceases, the agency relationship also action based on their reliance on the agent's apparent authority.
comes to an end. The principal is expected to ratify or reject the agent's actions once
Apparent authority is often applied in cases involving partnerships and companies,
the situation is resolved and communication is restored.
where the third party deals with an agent of the organization without knowing the
Overall, agency relationships are formed in various ways, including by appointment, exact scope of the agent's authority. The rule of indoor management protects the
estoppel, ratification, and necessity. Each type of agency has specific conditions and third party, allowing them to assume that the agent has the necessary authority to act
implications, and it is essential for parties involved to understand their rights and on behalf of the organization, even if the agent's actual authority may be limited or
obligations under such relationships. terminated.
Authority in Agency Relationships In conclusion, agency relationships are based on the authority granted to the agent by
Authority is a critical element in agency relationships, as it determines the agent's the principal. Actual authority is expressly or implicitly given, while apparent authority
power to act on behalf of the principal and bind the principal in their dealings with arises from the principal's representations to third parties. Both types of authority play
third parties. There are two main types of authority in agency relationships: actual a crucial role in determining the legal implications of actions taken by agents on behalf
authority and apparent authority. of their principals.

1. Actual Authority Rights and Duties of the Parties in an Agency Relationship

 Express Authority: This is the authority that the principal explicitly gives to Duties of the Principal to the Agent:
the agent, either in writing or orally, through a contract or a power of
attorney. It is clear and specific, leaving no room for ambiguity.

64
 1. Payment of Agreed Commission: The principal must pay the agent the compensating the agent and providing necessary support for the agency's
agreed-upon commission or remuneration for the services rendered. The performance.
commission becomes due as per the terms of the agency agreement.
Relationship between the Agent and Third Party
2. Indemnification: The principal is obligated to indemnify the agent by
reimbursing them for any expenses incurred while carrying out the principal's The legal effects of an agency relationship depend on whether the
business. This includes moneys paid out of pocket for necessary expenses agent is acting for a disclosed principal or an undisclosed principal:
related to the agency.
a) Disclosed Principal: If the agent acts for a disclosed principal
Duties of the Agent to the Principal: and informs the third party of this fact, the general rule is that the
1. Exercise of Due Diligence and Special Skills: The agent must exercise due agent drops out, and the principal takes his place in the transaction.
The principal becomes directly liable on the contract, and the agent is
diligence and apply any special skills they profess to have while performing
not personally liable. The third party can sue the principal directly for
their duties. For example, a selling agent must strive to obtain the best price any breaches or issues arising from the contract.
possible for the principal's goods or property, and a buying agent must seek
the lowest price possible for goods or services to be procured. Exceptions:
2. Account Rendering: The agent must render an account to the principal when
required. This involves providing a detailed report of transactions, expenses,  If the agent executes a deed in his own name without indicating his
and other relevant information related to the agency. status as an agent.
 If the agent signs a bill of exchange in his own name without
3. No Conflicts of Interest: The agent must not engage in any actions that create indicating his status as an agent.
a conflict of interest with the principal's business. This means that the agent  If the agent contracts as an agent but is, in fact, a principal.
should not act as a principal against their own employer, ensuring they act  If the trade custom deems the agent personally liable.
solely in the best interest of the principal.
b) Undisclosed Principal: If the agent was contracting for an
4. No Secret Profits: The agent must not make any secret profits beyond the undisclosed principal (i.e., the third party was not aware of the
agreed-upon commission. Any profit obtained by the agent without the principal's existence), the legal rules are as follows:
principal's knowledge or approval is considered a secret profit and must be
disclosed and accounted for.  If the third party fails to perform the contract, they may be sued by
5. Non-delegation of Authority: As a general rule, the agent cannot delegate either the agent or the undisclosed principal, but not both.
 If the contract is breached by the principal, the third party may either
their authority to a third party without the principal's consent. However, in
sue the principal or the agent.
certain circumstances, delegation may be permitted if it is necessary,
customary in the business, or authorized by the principal.
Apparent Authority and Breach of Warranty of Authority: If
6. Confidentiality: The agent must keep all confidential information and the agent acted under apparent authority (i.e., the principal's
documents entrusted to them by the principal confidential. This duty arises authority was misrepresented), the third party has a right of action
from the agent's obligation to act in good faith and protect the principal's against the agent for breach of warranty of authority. This means
that the agent is responsible for any harm caused due to
interests. misrepresenting the authority they purported to exercise on behalf of
In summary, an agency relationship involves specific duties and rights for both the the principal.
principal and the agent. These duties ensure that the agent acts diligently, in good
faith, and in the best interest of the principal, while the principal is responsible for
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 Termination of Agency: An agency relationship may be terminated 1. Duty to take reasonable care of the goods: Regardless of whether the
in two ways: bailment is gratuitous or for reward, the bailee is obligated to take
reasonable care of the goods while they are in their possession.
a) By Act of the Parties:
2. Duty to return the goods as per the terms of the bailment: The bailee must
return the goods according to the agreed terms of the bailment, even if they
 Mutual Agreement: The parties involved in the agency relationship
can mutually agree to terminate it. exercise a lien on the goods (a right to retain possession until payment is
 Withdrawal of Consent: Either the principal or the agent can withdraw made).
their consent to the agency, effectively terminating it. 3. Duty to the true owner: If the bailor is not the true owner of the goods, the
 Performance of Contractual Duties: The agency may terminate once
bailee owes a duty of care to the actual owner, ensuring the goods' safety
the contractual duties outlined in the agency agreement are fulfilled.
and proper return.
b) By Operation of the Law: Duties of the Bailor:
1. Duty to disclose the state of goods: The bailor must inform the bailee about
 Death, bankruptcy, or insolvency of the principal (where the agent is
the condition of the goods, as it affects the bailee's ability to take care of
a legal person).
 Mental disorder of the principal. them properly.
 Principal becoming an enemy (in certain legal contexts). 2. Duty to indemnify the bailee: If the bailee incurs any costs while taking care
of the goods, the bailor is responsible for reimbursing those costs.
In summary, the relationship between the agent and third party
depends on whether the principal is disclosed or undisclosed. The 3. Duty to pay sums due (for reward bailments): In bailments for reward, such
termination of an agency can occur by mutual agreement or as repairs or dry-cleaning, the bailor must pay the agreed-upon sums for the
operation of the law. services provided.
Nature of Bailment Relationships
4. Duty to take back the goods: The bailor must be willing to take back the
Bailment is a legal relationship that arises when one party, the bailor, delivers goods goods from the bailee when requested, as the duty to return the goods is
to another party, the bailee, on specific terms or instructions. The bailee holds the reciprocal.
goods in their possession temporarily and is required to return them to the bailor or
In summary, bailment involves the temporary transfer of possession of goods from the
follow the given instructions.
bailor to the bailee. The bailee must take reasonable care of the goods and return
Examples of bailment include leaving luggage at a left luggage booth, storing goods in them as agreed, while the bailor has a duty to provide accurate information about the
a warehouse, or taking goods for repairs at a garage. Bailments can be classified as goods, pay any due amounts, and be ready to take back the goods when needed.
gratuitous bailments, where no reward is given, or bailments for reward, where a fee
Assignment and Subcontracting
is paid for safekeeping.
Bailment can also occur when goods are hired out for a specific purpose, such as car Assignment: An assignment is a legal mechanism through which
rentals or event equipment hire. An involuntary bailment may arise when a person is one party (the assignor) transfers their rights in a contract to a third
placed in custody of goods without their consent, such as when someone forgets their party (the assignee). However, an assignment does not create a new
belongings in another person's premises. contract but merely transfers certain rights to the assignee. Only
rights can be assigned, not liabilities. For example, the right to be
Rights and Duties of the Parties to a Bailment paid, intellectual property rights, and other contractual benefits can
be assigned.
Duties of the Bailee:
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Assignments can be statutory or common law. Statutory assignments The concept of fair dealing varies from one jurisdiction to another, but it generally
are governed by specific laws, such as the Copyright Act, which allows for certain purposes, such as research, private study, criticism, review,
allows for the assignment of copyright rights. Common law quotation, news reporting, parody, caricature, pastiche, and illustration for teaching.
assignments are based on the intent of the parties to transfer rights
The use must be for non-commercial purposes and should not unduly prejudice the
explicitly stated in the contract.
rights of the copyright holder.
Subcontracting: Subcontracting is a situation where the main Fair dealing enables researchers, students, and other users to use copyrighted
contractor (also known as the prime contractor) enters into a contract material for specific purposes without facing copyright infringement liability, as long as
with a subcontractor to perform specific tasks or services under the the use meets the criteria of fair dealing. It promotes access to knowledge and
primary contract. The subcontractor is responsible for completing the encourages the sharing of information while still protecting the rights of copyright
assigned work, and the prime contractor remains liable to the client
holders.
for the overall project.
Fair Pricing: Fair pricing refers to the establishment of a price point for goods or
In the context of procurement and supply chain relationships, services that is reasonable and fair to both parties involved in the transaction. It is
subcontracting is common in large projects where specialized tasks based on agreed-upon conditions, quality, and timeliness of contract performance.
are outsourced to subcontractors. The prime contractor remains Fair pricing ensures that consumers are not charged unreasonably high prices and that
responsible for ensuring that the subcontractor performs its duties
there is no discrimination in prices charged to different customers in similar
and meets contractual obligations.
circumstances.
Consumer Rights and Tort Law: In the context of consumer rights, Legislation and competition authorities play a vital role in promoting fair pricing.
the law of tort (negligence) plays a crucial role in product liability and Competition authorities, like the Competition Authority of Kenya, are responsible for
consumer protection. If a consumer suffers damage due to faulty eliminating anti-competitive behavior in the market, which can lead to unfair pricing
goods or services, the law of tort allows them to sue the
practices. Consumer protection laws, such as the Consumer Protection Act of Kenya,
manufacturer or supplier for negligence. The landmark case of
Donoghue vs. Stevenson established the concept of duty of care also prohibit unscrupulous practices that may result in unfair pricing and prescribe
owed by manufacturers to consumers. penalties.
Due Care and Duty of Care:
In procurement and supply chain relationships, the law of tort can
apply in subcontracting situations. For instance, if a subcontractor's Due care, also known as duty of care, is the legal standard that requires individuals to
negligence causes harm or damages, the main contractor may be exercise reasonable care and caution in their actions to avoid foreseeable harm to
held vicariously liable for the actions of its employees. others. It is a fundamental concept in tort law and negligence claims.
The duty of care is a legal obligation that may be imposed by law between individuals
Overall, both assignment and subcontracting are essential legal
mechanisms used in business relationships to transfer rights and who have no direct relationship but may become related in some manner. For
allocate responsibilities, respectively. They help streamline business example, professionals, such as engineers or architects, are expected to exercise due
operations and protect the interests of parties involved in complex care in their professional practice, and contractors are also held to a duty of care in
transactions and projects their trade.
Fair Dealing: Fair dealing is a legal exception to the exclusive rights granted by
In summary, fair dealing, fair pricing, and due care/duty of care are essential legal
copyright law to the creators of creative works. It allows limited use of copyrighted
principles that ensure fairness and protect the rights and interests of various parties in
material without seeking permission from the copyright holder or paying royalties. Fair
different contexts.
dealing is found in many common law jurisdictions, including those in the
Commonwealth of Nations.

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Confidentiality and Exceptions: Confidentiality is the practice of protecting sensitive 3. Number of Parties: A guarantee necessarily involves three parties—the
information or trade secrets from being disclosed to unauthorized parties. Companies debtor, creditor, and guarantor. An indemnity typically involves two parties—
often have a vested interest in safeguarding their ideas, designs, processes, and other the indemnifier and the indemnified party.
proprietary information to prevent competitors from exploiting them.
4. Writing Requirement: A contract of guarantee must be evidenced in writing
In contract law, confidentiality can be ensured through the inclusion of confidentiality to be enforceable, as required by the Statute of Frauds in many jurisdictions.
clauses or non-disclosure agreements (NDAs) in contracts. These clauses restrict the In contrast, a contract of indemnity does not necessarily have to be in writing,
parties involved from disclosing or using certain information for unauthorized although a written agreement is recommended to avoid disputes.
purposes. Confidentiality clauses are typically inserted in contracts to protect sensitive
In summary, an indemnity is a broader and more independent form of contractual
information shared between parties during the course of their business relationship.
obligation, while a guarantee is a secondary promise that depends on the validity of
However, the concept of confidentiality must be balanced with laws on intellectual the primary debtor's obligation.
property and anti-competitive practices. While companies have the right to protect
Formation of Contracts of Guarantee and Indemnity: The formation of contracts of
their ideas and trade secrets, they must also comply with competition laws and ensure
guarantee and indemnity involves certain requirements:
that their practices do not lead to anti-competitive behavior or monopolies.
1. Written Form: Contracts of guarantee must be in writing to be valid and
Restraint-of-trade clauses that unreasonably restrict trade or competition are void at
enforceable. This requirement is specified in section 3 of the Law of Contract
common law. To be enforceable, such clauses must be reasonable in terms of
Act. Similarly, contracts of indemnity may or may not be in writing, but a
geographical area, scope, and duration. This ensures that companies can protect their
written agreement is recommended to avoid disputes.
confidential information without unduly stifling competition in the market.
2. Stamp Duty: Both contracts of guarantee and indemnity are listed as
Indemnity and Guarantee: An indemnity and a guarantee are both contractual
contracts for which stamp duty may be charged under the First Schedule to
agreements, but they differ in their nature and legal implications:
the Stamp Duty Act. If an instrument (such as a guarantee or indemnity
1. Nature of Obligation: A contract of guarantee involves three parties—the agreement) is not stamped within the required time frame, it is inadmissible
debtor (primary obligor), the creditor (person to whom the debt is owed), in court as evidence, as per section 19 of the Stamp Duty Act.
and the guarantor. The guarantor undertakes to pay the debt on behalf of the
Rights of the Guarantor: A guarantor in a contract of guarantee has certain rights
debtor if the debtor fails to do so. The guarantor's liability is secondary and
and protections:
dependent on the debtor's default.
1. Right to Require Collection: After the guaranteed debt becomes due, the
On the other hand, a contract of indemnity involves two parties—the indemnifier and
guarantor can require the creditor to collect the debt from the primary
the indemnified party. The indemnifier undertakes a separate, primary obligation to
debtor, as per the terms of the guarantee.
compensate the indemnified party for any loss, damage, or liability incurred.
2. Pleading Set-Off or Counterclaim: The guarantor has the right to plead a set-
2. Independence of Obligation: In a guarantee, the guarantor's liability is
off or raise a counterclaim against the creditor if sued by the creditor.
contingent upon the validity of the underlying contract between the debtor
and the creditor. If the principal contract is invalid or unenforceable, the 3. Subrogation: Upon payment of the guaranteed debt, the guarantor is entitled
guarantee is also invalidated. to be subrogated to all the rights of the creditor in relation to the debt. This
means that the guarantor steps into the shoes of the creditor and can pursue
In contrast, an indemnity is independent of the underlying contract. The indemnifier's
any rights or remedies that the creditor had against the debtor.
liability remains valid even if the underlying contract is invalid or unenforceable.

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 4. Discharge from Guarantee: The guarantor may be discharged from the  The right to control the actions and decisions of the agent within the scope of
guarantee if the guarantee was obtained through duress, undue influence, or the agency agreement.
fraud by the primary debtor.
 The right to receive an account of all transactions and dealings conducted by
Rights of Joint Guarantors: In cases where multiple guarantors guarantee the same the agent on their behalf.
debt, a guarantor who has paid more than their share is entitled to contribution
 The right to terminate the agency relationship at any time, subject to any
from co-guarantors, as per equity principles.
contractual obligations or notice requirements.
Discharge of the Guarantor: A guarantor may be discharged from their obligations
 The right to compensation or reimbursement for expenses incurred by the
under certain circumstances, including:
agent while acting on the principal's behalf, as per the terms of the agency
1. Changes in the underlying contract without the guarantor's consent. agreement.
2. Illegality of the underlying contract.  The right to enforce any contracts or transactions made by the agent on their
behalf, as long as the agent acted within their authority.
3. Discharge of the primary debtor.
Rights of the Agent:
4. Expiry of the limitation period within which the creditor may sue to enforce
the guarantee.  The right to compensation or remuneration for services rendered, as
specified in the agency agreement.
5. Actions inconsistent with the guarantor's rights.
 The right to indemnity for expenses and liabilities incurred while acting on
6. Rescission of the contract of guarantee for just or lawful cause.
the principal's behalf, provided the agent acted within their authority and in
7. Guarantee obtained through fraud, duress, misrepresentation, or the principal's interest.
unconscionable conduct.
 The right to be protected from any undisclosed risks or liabilities that the
Letters of Comfort: principal knew or should have known about.
Letters of comfort are used in commercial transactions to reassure parties about the  The right to be reimbursed for any expenses or costs incurred while carrying
settlement of debts or the creditworthiness of potential debtors. Whether they create out the agency duties.
legally binding obligations depends on the specific wording and context of the letter. If
 The right to rely on the principal's instructions and directions, and the right to
strongly worded, a letter of comfort may create a binding obligation on the issuer. For
seek clarification if necessary.
instance, under certain statutes or acts, letters of comfort issued by government
authorities may create legal obligations. 2. Rights of the Parties to a Bailment: In a bailment, which is a contractual
relationship where one party (the bailor) delivers goods to another party (the
bailee) for a specific purpose, the rights of the parties are as follows:
Rights of the Bailor:
QUESTIONS AND ANSWERS
 The right to have their goods returned at the end of the bailment or upon
1. Rights of the Parties to an Agency Agreement: In an agency agreement, which fulfillment of the purpose of the bailment.
is a contract where one party (the agent) acts on behalf of another party (the
 The right to determine the specific purpose and duration of the bailment.
principal), the rights of the parties are as follows:
 The right to receive compensation or reimbursement for any expenses
Rights of the Principal:
incurred by the bailor for the bailment, if agreed upon.
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  The right to impose conditions or restrictions on the use of the goods during  For a legal assignment of a debt, the assignee can sue the debtor in their own
the bailment. name without joining the assignor. The debtor's obligations to the assignee
become direct and not merely as a representative of the assignor.
 The right to receive a duty of care from the bailee to ensure the safekeeping
of the goods.  For an equitable assignment of a debt, the assignee can only sue the debtor if
they join the assignor as a co-plaintiff or as the debtor's co-defendant if the
Rights of the Bailee:
assignor refuses to be joined.
 The right to possess and use the goods for the specific purpose of the
 If the assignment is absolute, the assignee can sue the debtor in their own
bailment.
name without joining the assignor, regardless of whether it is a legal or
 The right to be protected from any undisclosed defects or dangers in the equitable assignment.
goods delivered by the bailor.
 In cases of notice of assignment to the debtor, the debtor's obligation to
 The right to be indemnified by the bailor for any losses or damages incurred make payment is discharged by payment to the assignor if the debtor was
due to the bailor's negligence or faulty goods. unaware of the assignment. Once the debtor receives notice, they must make
 The right to compensation or remuneration for services rendered in payments to the assignee.
connection with the bailment, if agreed upon. 5. Binding Nature of a Letter of Comfort: The binding nature of a letter of
 The right to return the goods to the bailor at the end of the bailment or upon comfort depends on the specific wording and context of the letter. If the
fulfillment of the purpose. letter contains strong and unequivocal language that creates an intention to
be legally bound, it can be considered legally binding. However, if the letter
3. Distinction Between Indemnity and Guarantee: only contains statements of present intent or moral support without clear
 Indemnity: An indemnity is a contract where one party (the indemnifier) and explicit commitments, it may not be legally binding. The court will
undertakes a primary obligation to compensate another party (the consider the intention of the parties and the overall circumstances
indemnitee) for any losses, damages, or liabilities incurred by the indemnitee. surrounding the issuance of the letter to determine its binding effect.
The indemnifier's liability is independent of any underlying contract or 6. Circumstances Releasing a Guarantor from a Guarantee: A guarantor may be
transaction. Even if the underlying contract is invalid or illegal, the released from a guarantee under various circumstances, including:
indemnifier remains liable. The indemnitee can claim directly from the
indemnifier without involving the primary debtor. The contract of indemnity  Changes in the underlying contract without the guarantor's consent.
may or may not be in writing.  Illegality of the underlying contract.
 Guarantee: A guarantee is a contract involving three parties: the principal  Discharge of the primary debtor.
debtor, the creditor, and the guarantor. In a guarantee, the guarantor
 Expiry of the limitation period within which the creditor may sue to enforce
undertakes a secondary obligation to pay the debt owed by the principal
the guarantee.
debtor if the debtor fails to pay. The guarantor's liability is contingent upon
the debtor's default, and the guarantee is dependent on the validity of the  Actions inconsistent with the guarantor's rights, such as compromising the
underlying contract between the debtor and the creditor. A guarantee must rights of co-guarantors to contribution.
be in writing to be valid.
 Rescission of the contract of guarantee for just or lawful cause.
4. Legal Rules Governing the Rights of an Assignee to Recover from the Debtor:
 Guarantee obtained through fraud, duress, misrepresentation, or
unconscionable conduct.

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 7. Duty of Care of a Contractor and a Professional Engineer: The duty of care of 3. Whether Mike can enforce payment against WXYZ Ltd.
a contractor and a professional engineer may differ due to the nature of their
1. Nature of Legal Relations between Mike and Carlo: The legal relations
roles:
between Mike and Carlo are governed by the contract entered into for the
 Contractor: A contractor's duty of care is to perform their work with repair of Carlo's personal car. In this case, Carlo made a statement to Mike
reasonable skill and care according to industry standards and contractual that the expenses for the repair should be charged to A-to-Z Ltd, and if the
requirements. Their primary obligation is to deliver the physical construction company doesn't pay, Carlo will pay. Mike agreed to this arrangement. This
or service as per the specifications and drawings provided by the professional creates a contractual relationship between Mike (representing Cars LLP) and
engineer or employer. The contractor is responsible for adhering to safety Carlo.
standards, workmanship, and timelines.
Since Carlo is the one who owns the car and requested the repairs, he is the party
 Professional Engineer: A professional engineer's duty of care is higher, as they primarily liable to pay for the repair services. The fact that he expressed the intention
are expected to possess specialized knowledge, expertise, and professional to charge the expenses to A-to-Z Ltd does not absolve him of his personal liability for
qualifications. Their duty of care is to exercise the skill, knowledge, and care the car repair bill. Therefore, the primary legal relation between Mike and Carlo is that
expected of a competent engineer in their field. They are responsible for of a contractual relationship, where Carlo is personally liable for the payment of the
designing, planning, and overseeing construction projects, ensuring structural repair services provided by Cars LLP.
integrity, safety, and adherence to engineering principles and codes.
2. Nature of Legal Relations between Mike and A-to-Z Ltd: There is no direct
8. Strict Liability under Product Liability Law vs. Law of Tort of Negligence: contractual relationship between Mike and A-to-Z Ltd. The contract for the
repair of Carlo's personal car was made between Mike and Carlo personally.
 Product Liability Law: Under product liability law, a manufacturer or seller of
Although Carlo expressed the intention to charge the expenses to A-to-Z Ltd,
a defective product can be held strictly liable for any injuries or damages
this does not create a contract between Mike and A-to-Z Ltd. Therefore,
caused by the product, regardless of whether they were negligent or not. The
there is no contractual relationship between Mike and A-to-Z Ltd.
focus is on the dangerous condition of the product rather than the conduct of
the manufacturer. Strict liability aims to protect consumers and hold 3. Enforceability of Payment against WXYZ Ltd: WXYZ Ltd is the successor
manufacturers accountable company to A-to-Z Ltd, and its assets were transferred from the dissolved A-
to-Z Ltd. Since there is no direct contractual relationship between Mike (Cars
CASE STUDY
LLP) and A-to-Z Ltd, Mike cannot enforce payment against WXYZ Ltd for the
Case study: Carlo’s Car Aphlina is a director in A-to-Z Ltd. She holds 50% of the car repair bill.
shares in A-to-Z Ltd, with the remaining 50% held by her husband, Carlo. Carlo is also
Carlo's statement about charging the expenses to A-to-Z Ltd, without any express
a director in A-to-Z Ltd. Aphlina is also the managing director of A-to-Z Ltd. Carlo
agreement or authorization from WXYZ Ltd, does not create a binding obligation for
entered into a contract with Cars LLP for the repair of his personal car. He told Mike,
WXYZ Ltd to pay for the car repairs. WXYZ Ltd did not enter into the contract with Cars
the managing partner of Cars LLP, ‘charge the expenses to A-to-Z Ltd, if the company
LLP for the car repair services, and they are not directly liable for any obligations under
doesn’t pay, I will pay.’ Mike agreed to this arrangement. Shortly afterwards, A-to-Z
that contract.
Ltd was dissolved and its assets transferred to WXYZ Ltd. Carlo was displeased with
the quality of repairs undertaken by Mike, so he refused to pay but sought the Furthermore, the fact that Carlo was displeased with the quality of repairs does not
return of his car. Mike sought to enforce payment for services rendered against automatically entitle him to refuse payment or seek a return of the car. In cases of
WXYZ Ltd, failure to which he told Carlo he will sell the car. dissatisfaction with services rendered, there may be contractual remedies available or
potential claims for breach of contract or negligence. However, these issues need to
Examine the nature of the legal relations between: 1. Mike and Carlo;
be addressed between Carlo and Mike (Cars LLP) directly, and WXYZ Ltd should not be
2. Mike and A-to-Z Ltd; and held liable for the payment of the car repair bill.
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In conclusion, the nature of the legal relations between Mike and Carlo is contractual, 1. Terms and Obligations: Contract negotiation allows parties to define the
with Carlo being personally liable for the car repair bill. There is no direct contractual terms and obligations that each party will undertake. It ensures that all
relationship between Mike and A-to-Z Ltd, and Mike cannot enforce payment against parties involved are aware of their rights, responsibilities, and commitments
WXYZ Ltd for the car repair bill. Any disputes or claims regarding the car repair under the contract.
services should be resolved directly between Carlo and Mike (Cars LLP)
2. Clarity and Understanding: Negotiation enables parties to discuss and clarify
the details of the contract, avoiding misunderstandings and ambiguities that
could lead to disputes later on.
CHAPTER 11: CONTRACT NEGOTIATION
3. Tailored Solutions: Each contract is unique and may require customization
Terms used in contract negotiation
based on the specific needs of the parties involved. Negotiation allows parties
to craft agreements that suit their individual requirements.
BATNA: Best Alternative to a Negotiated Agreement - Refers to the best alternative or 4. Protection of Interests: Through negotiation, parties can protect their
option available to a party if no agreement is reached in the negotiation. It represents interests and seek favorable terms. They can address concerns and potential
the fallback option that a party can pursue if the negotiation fails. risks, ensuring a fair distribution of rights and liabilities.
Fall back negotiating position: The last offer or concession that a party is willing to 5. Value Creation: Successful negotiation can lead to value creation for all
make in a negotiation, which may be less favorable than their preferred outcome but parties involved. By seeking mutually beneficial outcomes, parties can
still more favorable than their BATNA. optimize the overall value of the contract.
Positional bargaining: A negotiation strategy where parties stick to their declared 6. Alternative Dispute Resolution (ADR): Contract negotiation can incorporate
positions or demands without considering broader interests. It often results in a win- ADR clauses, such as mediation or arbitration, for quicker and less costly
lose outcome. resolution of potential disputes.
Principled bargaining: A negotiation strategy where parties focus on their broad 7. Confidentiality: Negotiation can address confidentiality concerns, particularly
interests and seek mutually beneficial solutions. It aims for a win-win outcome. when dealing with sensitive information or trade secrets.
Representation: A pre-contractual statement made during negotiations that can 8. Exit Strategies: Negotiation allows parties to include exit or termination
influence the other party's decision to enter into a contract. Once incorporated into clauses that provide a clear process for ending the contract if necessary.
the contract, it becomes a legally enforceable term. Misrepresentation occurs when a
9. Compliance and Legal Enforceability: Through negotiation, parties ensure that
false statement is made, leading to potential legal action.
the contract complies with relevant laws and regulations, making it legally
Win-Lose: A negotiating approach where one party's gain is seen as the other party's enforceable.
loss. It is a zero-sum game where one party's interests prevail over the other's.
10. Relationship Building: Negotiation provides an opportunity for parties to build
Win-Win: A negotiating approach where both parties reach an agreement that and maintain a positive working relationship. Collaborative negotiations can
satisfies their interests, resulting in a mutually beneficial outcome. It aims to create foster trust and cooperation between the parties.
value for all parties involved.
Contract negotiation is of utmost importance in establishing legally binding
Setting clear and well-defined objectives in contract negotiation is crucial for
agreements between parties. Some key reasons why contract negotiation is vital
achieving successful outcomes. Here are some important considerations when
include:
setting objectives:

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1. Know Your Priorities: Before entering negotiations, it is essential to identify By setting clear and well-thought-out objectives, parties can enter contract
and prioritize the key elements that matter most to your organization. negotiations with a strong foundation for achieving mutually beneficial outcomes.
Consider factors such as price, quality, timeline, delivery terms, payment Additionally, having a strategic approach can help navigate complex negotiations and
terms, and other specific requirements. build lasting partnerships with other parties involved
2. Define Your BATNA: As mentioned, understanding your Best Alternative to a Factors influencing negotiations are diverse and complex, and they can significantly
Negotiated Agreement (BATNA) is vital. This represents the fallback option if impact the direction and outcomes of the negotiation process. Here is a summary of
negotiations fail. Knowing your BATNA helps you set realistic and achievable the key factors:
objectives during negotiations.
1. Personality and Disposition: The negotiators' personalities, attitudes, and
3. Identify Non-negotiables: Determine the aspects of the contract that are non- cultural backgrounds can influence their approach to negotiations, including
negotiable and must be included to secure a deal. These may include assertiveness, confidence, and willingness to compromise.
essential legal protections, regulatory compliance, or critical project
2. Negotiating Skills and Capacities: Experienced negotiators with the authority
milestones.
to make decisions can be more effective in driving the negotiation process.
4. Consider Long-term Objectives: Look beyond the immediate deal and
3. Background Information: Knowledge of the other party's situation,
consider the long-term implications of the contract. Ensure that the
constraints, and negotiating position can influence the willingness to make
agreement aligns with your organization's overall strategic goals and future
concessions and reach an agreement.
plans.
4. External Influences: Legal, regulatory, political, and technological factors
5. Involve Experts: Bring in relevant experts, including legal, technical, financial,
beyond the parties' control can impact negotiations and even stall them.
and industry specialists, to provide valuable insights and support in setting
objectives. Their input can help you make informed decisions. 5. Complexity of Subject Matter: Negotiating over complex technical matters or
transactions involving multiple parties or regulatory agencies may extend the
6. Research and Market Intelligence: Conduct thorough research on market
negotiation process.
conditions, industry trends, and competitor practices to gain a better
understanding of prevailing norms and potential opportunities. 6. Cultural Factors: Cultural differences can influence communication styles,
decision-making processes, and the overall negotiation approach.
7. Establish Target and Reservation Points: Set a clear target point that
represents your ideal outcome, as well as a reservation point that represents 7. Mutual Dependence: Parties' interdependence and reliance on each other
the minimum acceptable terms. These points help guide your negotiating can influence their willingness to be accommodative during negotiations.
strategy. 8. Time Constraints: Time pressure and deadlines can impact the pace and
8. Analyze the Other Party's Objectives: Try to understand the priorities and outcomes of negotiations.
objectives of the other party. Knowing their motivations can help you craft 9. BATNA Latitude: The strength of a party's Best Alternative to a Negotiated
proposals that address their needs while also advancing your interests. Agreement (BATNA) can influence their bargaining power and willingness to
9. Flexibility and Trade-offs: Be prepared to make concessions and trade-offs make concessions.
during negotiations. Having a clear understanding of your priorities and limits 10. Legal and Regulatory Concerns: Parties may be influenced by legal
allows you to be more flexible while still protecting your core interests. requirements, industry standards, and compliance obligations during
10. Maintain Open Communication: Establish a collaborative and constructive negotiations.
environment for negotiation. Transparent communication and active listening
can foster trust and facilitate the resolution of potential conflicts.
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 11. Economic Factors: Economic conditions, market trends, and price fluctuations Challenges and barriers to effective negotiations can hinder the process and prevent
may affect the parties' negotiation positions. parties from reaching mutually beneficial agreements. Some of these challenges
include:
12. Ethical Considerations: Parties may be guided by ethical principles and social
responsibilities during negotiations. 1. Cultural Differences: Cross-cultural negotiations can be complicated by
language barriers, different negotiation styles, and varying expectations
It is essential for negotiators to be aware of these factors and adapt their strategies
around communication and decision-making processes.
accordingly. Understanding the interplay of these influences can help negotiators
navigate the complexities of the negotiation process and work towards achieving 2. Lack of Trust: Lack of trust between negotiating parties can lead to suspicion
mutually beneficial outcomes. and defensive behavior, making it difficult to find common ground and
compromise.
Effective negotiations are essential for reaching mutually beneficial agreements
while preserving relationships among the parties involved. Fisher, Ury, and Patton 3. Risk Aversion: Parties who are risk-averse may be unwilling to explore new
propose principled bargaining as a more productive approach, focusing on interests possibilities or make concessions, limiting the potential for creative solutions
rather than fixed positions. However, there are several factors that can influence the and agreement.
effectiveness of negotiations:
4. Limited Authority: Negotiators with limited authority to make decisions may
1. Perception: Parties should try to understand the other party's perspective need constant approval from higher-ups, leading to delays and impeding
and work towards aligning perceptions to find common ground. progress in negotiations.
2. Emotion: Recognizing and managing emotions, including one's own, can lead 5. Power Imbalance: Significant power imbalances between negotiating parties
to more rational and constructive negotiations. can lead to one party dominating the negotiations, leaving the other party
with limited options and leverage.
3. Communication: Open and honest communication is crucial to address
concerns and reach a better understanding of each party's interests. 6. Miscommunication: Misunderstandings and miscommunications can occur
during negotiations, leading to confusion and frustration.
4. Prevention: Efforts should be made to preserve the relationship between the
parties during and after negotiations. 7. Competitive Mindset: An overly competitive approach to negotiations can
lead to a win-lose mentality, making it challenging to find mutually beneficial
5. Power Balance: The distribution of power between negotiating parties can
outcomes.
significantly impact the boundaries and outcomes of negotiations.
8. Emotional Barriers: Emotions can cloud judgment and impede rational
6. Cultural Considerations: Cultural differences should be acknowledged and
decision-making during negotiations, especially when parties become
respected in cross-cultural negotiations.
entrenched in their positions.
7. Deception: Parties should be cautious about potential deception and conduct
9. Incomplete Information: Parties may lack access to crucial information or
due diligence to assess the trustworthiness of the other party.
have limited understanding of the other party's needs and interests.
8. Building Trust: Building mutual trust can reduce the incentive for deceptive
10. Time Constraints: Negotiating parties may face time pressures, leading to
behavior and foster a more cooperative negotiation environment.
rushed decisions and a lack of thorough exploration of potential agreements.
9. Legal Protections: Parties can use legally binding contractual documents and
Overcoming these challenges and barriers requires open communication, willingness
written confirmations to protect their interests and signal their preparedness.
to understand each other's perspectives, and a focus on principled bargaining rather
than positional stances. Building trust, conducting due diligence, and fostering a

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cooperative negotiation environment can also contribute to more effective 8. Ombudsman: In some industries or organizations, an ombudsman serves as a
negotiations and successful outcomes. neutral party who can help address conflicts and disputes in a confidential
and informal manner.
The choice of the appropriate dispute resolution mechanism depends on factors such
Dispute resolution mechanisms play a crucial role in ensuring that negotiations
as the nature of the dispute, the parties' preferences, time constraints, and the level
remain productive and lead to successful outcomes. While negotiation is often the
of control they want to maintain over the process and outcome. Effective dispute
first step in resolving disputes, there are instances where parties encounter
resolution mechanisms can help parties overcome challenges and barriers during
difficulties and need additional methods to reach a resolution. Some common
negotiations and lead to mutually satisfactory resolutions.
dispute resolution mechanisms are:
other dispute resolution mechanisms commonly used in legal practice. To
1. Mediation: Mediation involves the use of a neutral third party, the mediator,
summarize:
who facilitates communication between the parties to help them reach a
mutually acceptable resolution. Mediation is voluntary, and the mediator 1. Arbitration: An alternative dispute resolution mechanism governed by legal
does not impose a decision but assists in finding common ground. instruments, both international and domestic. Parties agree to submit their
disputes to arbitration, and the decision of the arbitrator is binding.
2. Arbitration: Arbitration is a more formal process where the parties submit
Arbitration is a structured process subject to the parties' control, and the
their dispute to a neutral third party, the arbitrator, who acts as a judge and
arbitrator's award is enforceable as a court judgment.
makes a binding decision. The decision is usually enforceable under the law.
2. Mediation: A less formal alternative dispute resolution process where a
3. Adjudication: Adjudication is commonly used in construction contracts to
neutral mediator assists the parties in reaching a voluntary agreement. The
resolve disputes quickly. It involves appointing a third-party adjudicator who
mediator does not have the power to impose a solution but helps the parties
provides a decision on specific issues during the project, which is binding until
find common ground.
a final resolution is reached.
3. Conciliation: Similar to mediation but more informal, used to prevent
4. Litigation: If negotiations and other alternative dispute resolution methods
disputes from escalating. Conciliators take a more active role in proposing
fail, parties can resort to litigation, which involves bringing the dispute before
settlement terms.
a court. Litigation is a formal and adversarial process, and the court makes a
final binding decision. 4. Adjudication: A dispute resolution mechanism often used in the construction
industry. A third-party adjudicator, an expert in the relevant matters, makes a
5. Expert Determination: In some cases, parties may agree to refer specific
binding determination within strict timelines.
technical or specialized issues to an independent expert for a decision. The
expert's determination is usually binding and not subject to appeal. These alternative dispute resolution mechanisms provide parties with more flexible
and efficient ways to resolve their disputes outside of the formal court system. They
6. Dispute Review Boards (DRBs): DRBs are commonly used in construction
can be particularly beneficial when parties want to maintain confidentiality, control
projects. A DRB consists of a panel of neutral experts who monitor the
the process, or have specialized issues to address. The choice of the appropriate
project's progress and provide real-time dispute resolution to prevent issues
mechanism will depend on the nature of the dispute, the parties involved, and their
from escalating.
preferences for resolution
7. Escalation Clauses: Some contracts include escalation clauses that outline a
In addition to arbitration, mediation, conciliation, and adjudication, there are other
series of steps to be taken if a dispute arises. These steps may include
dispute resolution mechanisms that parties can use to resolve their conflicts outside of
negotiation, mediation, and finally, arbitration or litigation if necessary.
traditional court litigation. Some of these mechanisms include:

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 1. Negotiated Settlement: This is the simplest form of dispute resolution, where consider their unique circumstances, desired outcomes, and the complexity of the
parties directly negotiate with each other to find a resolution to their conflict. dispute when selecting the appropriate resolution method.
It is the basis for all other dispute resolution methods, and it allows parties to
maintain control over the outcome.
QUESTIONS AND ANSWERS
2. Expert Determination: Expert determination involves appointing an
independent expert in the relevant field to decide the disputed issue. The 1. A good contract is determined from the negotiating positions adopted.'
expert's decision is binding on the parties, similar to an arbitrator's award. Discuss the truth or otherwise of this statement.
This method is commonly used in disputes requiring specialized technical The statement suggests that the quality and effectiveness of a contract depend on the
knowledge or evaluation. negotiating positions taken by the parties during the negotiation process. While
3. Ombudsman: An ombudsman is an independent, neutral third party negotiating positions play a significant role in shaping the final contract, they are not
appointed to investigate complaints and disputes. Ombudsmen are the sole determinant of a good contract. Other factors, such as the clarity of contract
commonly found in certain industries or sectors, such as government terms, mutual understanding of obligations, and legal compliance, are equally
agencies, financial institutions, and educational institutions, to address essential in creating a successful contract.
grievances and seek fair resolutions. Negotiating positions are the starting points that parties take into negotiations,
4. Mini-Trial: A mini-trial is a structured and formalized process where representing their desired outcomes and interests. Effective negotiators must strike a
representatives of each party present their case before senior executives or balance between advocating for their interests and being open to compromise to
high-level officials from both sides. These officials then attempt to negotiate a reach a mutually acceptable agreement. A contract that reflects the parties' interests
settlement based on the information presented. While not legally binding, and considers potential risks and contingencies is more likely to be successful in the
the process can help parties understand the strengths and weaknesses of long term.
their cases and facilitate a resolution. However, solely focusing on negotiating positions without proper due diligence,
5. Dispute Review Boards (DRBs): DRBs are commonly used in construction understanding of legal requirements, and attention to potential risks can lead to an
projects. A panel of neutral experts is appointed to review disputes as they unbalanced or unenforceable contract. Parties must also consider the practicality of
arise during the project's execution. The DRB's decision is advisory and non- the contract's terms, the feasibility of performance, and the compatibility with the
binding, but it is intended to facilitate early resolution and prevent conflicts prevailing laws and regulations.
from escalating. In conclusion, while negotiating positions are crucial in shaping the direction of
6. Med-Arb: Med-Arb is a combination of mediation and arbitration. Parties contract negotiations, they are not the sole determinants of a good contract. A well-
attempt mediation first, and if mediation fails, the same neutral third party crafted contract requires thorough preparation, clear and precise terms, and a
becomes an arbitrator to render a binding decision on the unresolved issues. consideration of the practical aspects of its implementation.
This approach aims to encourage parties to cooperate in mediation and avoid 2. Successful negotiations call for careful pre-negotiation preparation. Explain
arbitration, which can be more time-consuming and costly. how parties can prepare for negotiations.
7. Settlement Conference: A settlement conference is a meeting held before a Pre-negotiation preparation is a critical phase that lays the foundation for successful
judge or a neutral third party where parties present their positions and negotiations. Proper preparation ensures that parties are well-informed, confident,
engage in settlement negotiations. The goal is to facilitate a resolution before and equipped to navigate the negotiation process effectively. Here are some steps
proceeding to a formal trial. that parties can take to prepare for negotiations:
Each of these dispute resolution mechanisms has its advantages and may be more
suitable for certain types of disputes or specific industries. Parties should carefully
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a. Define Objectives: Clearly identify the goals and interests that each party aims to b. Cultural Differences: Cross-cultural negotiations can be challenging due to
achieve through the negotiation. Establish the preferred outcome, acceptable differences in communication styles, values, and expectations. Misunderstandings
compromises, and deal-breakers. may occur, leading to a breakdown in negotiations.
b. Conduct Research: Gather relevant information about the subject matter of the c. Power Imbalance: When one party holds significantly more power or leverage over
negotiation, market trends, industry standards, and the other party's background and the other, it can lead to an unfair negotiation process and an imbalanced outcome.
position.
d. Emotional Factors: Emotions such as anger, frustration, or fear can cloud rational
c. Build a Negotiation Team: Assemble a team of skilled negotiators who possess the decision-making and hinder effective communication.
necessary expertise and authority to make decisions on behalf of the party.
e. Lack of Information: Insufficient information or asymmetry of information between
d. Assess BATNA: Understand the Best Alternative to a Negotiated Agreement the parties can impede understanding and compromise.
(BATNA) – the options available to each party if negotiations fail. This knowledge
f. Inflexible Positions: Parties unwilling to consider alternative solutions or
provides leverage during negotiations.
compromise may lead to a stalemate in negotiations.
e. Develop a Strategy: Plan the negotiation approach, including communication
g. Personality Conflicts: Personal conflicts between negotiators may escalate and
techniques, timing, and potential trade-offs.
undermine the negotiation process.
f. Identify Interests: Understand the underlying interests and concerns of both parties
h. Time Constraints: Insufficient time for negotiations can limit the scope for in-depth
to facilitate creative problem-solving and reach mutually beneficial agreements.
discussions and creative problem-solving.
g. Anticipate Counterarguments: Anticipate the other party's likely positions and
i. External Factors: External events or pressures, such as market changes or regulatory
arguments to develop effective responses.
developments, may disrupt the negotiation process.
h. Legal Review: Seek legal advice to ensure compliance with relevant laws,
j. Miscommunication: Poor communication, misunderstandings, or vague language in
regulations, and contractual obligations.
the negotiation can lead to unclear agreements.
i. Establish a Positive Relationship: Foster a constructive atmosphere by building
Addressing these hindrances requires open communication, a willingness to
rapport and trust with the other party.
understand the other party's perspective, and a commitment to finding mutually
j. Set a Negotiation Agenda: Plan the structure and agenda for the negotiation sessions beneficial solutions.
to stay focused and organized.
4. Discuss some of the issues commonly discussed in project negotiations.
By following these steps, parties can be better prepared to engage in negotiations
Project negotiations involve various issues that need to be addressed to reach an
confidently and productively.
agreement between parties involved in the project. Some common issues discussed in
3. Describe some of the factors that hinder successful negotiations. project negotiations include:
Several factors can hinder successful negotiations. These include: a. Scope of Work: Clearly defining the scope of the project, including deliverables,
milestones, and timelines.
a. Lack of Trust: Without trust between the parties, negotiations can become
contentious and unproductive. Trust issues may arise due to past conflicts, b. Pricing and Payment Terms: Negotiating the project's cost, payment schedule, and
miscommunications, or a lack of shared values. methods of payment.
c. Intellectual Property Rights: Determining ownership and usage rights for intellectual
property developed during the project.

77
d. Confidentiality and Non-Disclosure: Establishing rules to protect sensitive towards a resolution. It is often used in labor and consumer disputes. While
information and trade secrets shared during the project. conciliation is non-binding, the conciliator's suggestions
e. Risk Allocation: Allocating project risks and liabilities between parties, including CASE STUDY
insurance coverage and indemnification.
f. Change Orders: Addressing the process for handling changes to the project scope,
Case Study: Negotiating Terms i). Meli Shipping Ltd is a shipping company. It manages
schedule, and budget.
several cargo and passenger cruise ships. It wants to obtain a new ship for its cruise
g. Performance Guarantees: Establishing performance metrics and penalties for failure passenger business. It has entered into negotiations with a Japanese ship
to meet agreed-upon standards. manufacturer, Jujitsu Company Ltd for construction of such a ship. Write a
comprehensive brief to the Managing Director of Meli Shipping, advising the MD how
h. Dispute Resolution: Agreeing on a mechanism for resolving disputes that may arise
to go about negotiating the contract, and important contractual clauses to include in
during the project.
the ensuing contract. ii) Style Ltd is a fashion and design company. It has been
i. Termination and Exit Clauses: Establishing conditions and procedures for terminating approached by Runners Ltd to design a brand of light, strong, and comfortable running
the project and exiting the agreement. shoes, for the mass market. Runners Ltd has several sponsorship deals with the
j. Subcontracting and Third-Party Involvement: Addressing the involvement of organisers of popular marathon events around Africa, and it is also the shoe sponsor
subcontractors or third parties in the project. for several well-known marathoners of international repute. What are likely to be
some of the important terms to be negotiated, for which each party would drive a
Project negotiations require careful consideration of these issues to ensure that all hard bargain? iii) Ms. X is a well-known ‘celebrity’. She has thousands of followers on
parties' interests are protected and that the project can proceed smoothly. her social media pages. She has been hired by Ujenzi Ltd, a developer of high-end
5. Discuss the following forms of alternative dispute resolution: a. Arbitration. b. properties to market Ujenzi’s new penthouse developments in an upmarket area of
Mediation. c. Conciliation. d. Adjudication. town. Ms. X is also a brand ambassador for popular nightclubs, alcoholic drinks, a
bank, and a tours and travel company. What are some of the important clauses you
a. Arbitration: Arbitration is a formal alternative dispute resolution process where the would advise Ms. X to insist on in the contract?
parties present their case to one or more neutral arbitrators who make a binding
decision known as an arbitral award. The process resembles a trial, with the arbitrator
hearing evidence, considering arguments, and rendering a decision. Arbitration can be ANSWERS
chosen by the parties, and the arbitration agreement specifies the rules and
procedures governing the process. It is often used when parties want a private and
expedited resolution without going to court. i) Negotiating the Contract for a New Cruise Ship:

b. Mediation: Mediation is a voluntary and informal dispute resolution process where Dear Managing Director of Meli Shipping Ltd,
a neutral third party, the mediator, facilitates communication between the parties to As you enter into negotiations with Jujitsu Company Ltd for the construction of a new
help them reach a mutually acceptable resolution. The mediator does not impose a cruise passenger ship, it is crucial to approach the process with careful preparation
decision but instead helps parties explore options, identify common interests, and find and a focus on achieving mutually beneficial outcomes. Here are some key steps and
creative solutions. Mediation is non-binding, and the parties can choose to accept or important contractual clauses to consider during the negotiation:
reject the proposed resolution.
1. Pre-Negotiation Preparation:
c. Conciliation: Conciliation is similar to mediation but more interventionist. The
conciliator takes an active role in proposing settlement terms and guiding parties

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  Define Objectives: Clearly outline your company's goals and interests  Flexibility: Be open to some concessions while ensuring your core
in the new cruise ship, including passenger capacity, amenities, and interests are protected.
delivery timeline.
 Communication: Maintain clear and open communication
 Research: Gather information about Jujitsu Company's shipbuilding throughout the negotiation process to avoid misunderstandings.
capabilities, reputation, and past projects.
Remember, a successful negotiation should aim to create a long-term partnership with
 Identify BATNA: Understand your Best Alternative to a Negotiated Jujitsu Company while securing a high-quality cruise passenger ship for your business
Agreement to have leverage during negotiations. needs.
 Assemble Negotiation Team: Select a team with expertise in Best regards, [Your Name] Negotiation Team Lead, Meli Shipping Ltd
shipbuilding, legal, and financial matters.
ii) Negotiating Terms for Designing Running Shoes:
2. Contractual Clauses to Include:
In negotiating the contract between Style Ltd and Runners Ltd for designing running
 Specifications and Scope: Clearly define the specifications and shoes, both parties are likely to drive a hard bargain to protect their interests. Here
features of the cruise ship, including passenger capacity, cabin are some important terms to be negotiated:
configurations, entertainment facilities, and safety features.
1. Design Ownership: Style Ltd may seek to retain ownership of the shoe
 Delivery Schedule: Specify the timeline for ship construction, testing, designs to use them for other purposes or future collections. On the other
and delivery, ensuring it aligns with your operational needs. hand, Runners Ltd may insist on exclusive rights to the designs for their
brand.
 Performance Guarantees: Ensure that the ship meets agreed-upon
performance metrics, such as speed, fuel efficiency, and safety 2. Licensing and Royalties: Runners Ltd, being the shoe sponsor for popular
standards. marathon events and athletes, may want exclusive licensing rights to use the
shoe designs for promotional and marketing purposes. Style Ltd may
 Payment Terms: Negotiate payment milestones based on project
negotiate for royalties or licensing fees for the use of their designs.
progress and ensure a fair payment schedule.
3. Quality and Performance Standards: Runners Ltd would want the running
 Penalties for Delays: Include provisions for penalties in case of delays
shoes to meet specific quality, durability, and performance standards to
in delivery or construction.
appeal to their target market. Style Ltd would need to ensure that the
 Intellectual Property Rights: Address ownership and usage rights of agreed-upon standards are feasible and cost-effective to implement.
any proprietary designs or technologies incorporated into the ship.
4. Branding and Marketing: Both parties will need to agree on how the shoes
 Warranty and Support: Define the warranty period and after-sales will be branded, including logo placement and labeling. Runners Ltd may seek
support for any defects or issues that may arise post-delivery. prominent branding to leverage its sponsorship deals, while Style Ltd may
 Dispute Resolution: Establish a mechanism for resolving disputes, want to maintain its design aesthetics.
such as arbitration, to avoid protracted legal battles. 5. Payment Terms: Style Ltd may negotiate for upfront payments or milestone-
3. Negotiation Approach: based payments, while Runners Ltd may prefer payment upon successful
completion of the project.
 Collaboration: Foster a collaborative approach with Jujitsu Company,
seeking common interests and areas of compromise. 6. Intellectual Property Rights: The contract should address ownership of any
new innovations or technology developed during the design process.

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 7. Confidentiality: Both parties should agree to maintain the confidentiality of 9. Performance Metrics: Define the performance metrics and indicators that
any proprietary information shared during the negotiation and design Ms. X must meet to trigger performance-based incentives.
process.
10. Dispute Resolution: Establish a dispute resolution mechanism, such as
8. Production and Delivery Timelines: Runners Ltd may have specific timelines mediation, to resolve any disagreements that may arise during the contract.
for product release and sponsorships tied to marathon events, and Style Ltd
By insisting on these clauses, Ms. X can protect her brand, ensure fair compensation,
will need to accommodate these deadlines in the contract.
and establish clear expectations for her marketing services with Ujenzi Ltd.
9. Termination Clause: Include a termination clause outlining the conditions
Please note that specific legal advice should be sought to draft a comprehensive
under which either party can terminate the contract and the implications of
contract tailored to the parties' needs and applicable laws.
termination.
Negotiating these terms will require open communication, a willingness to find
common ground, and an understanding of each party's business goals and priorities.
iii) Negotiating Contract with Ms. X for Marketing Services: CHAPTER 12: TERMINATION OF CONTRACTS

When advising Ms. X on negotiating her contract with Ujenzi Ltd for marketing their
new penthouse developments, some important clauses to insist on include: Termination of Contracts A contract may be terminated, or “discharged” in one of
1. Scope of Services: Clearly define the marketing services Ms. X will provide, several ways. Termination is the point at which the contract is either lost, or
including social media promotion, public appearances, endorsements, and performed, and the parties are freed from further obligations; although where the
any other marketing activities. contract is lost or discharged otherwise than by performance, the injured party has a
right to be compensated. There are several ways in which a contract may be
2. Exclusivity: Ms. X should negotiate for exclusivity, ensuring that she does not
discharged:
promote competing properties or developers during the contract period.
 By performance
3. Compensation: Negotiate a fair and competitive compensation package,
 By breach
which may include a combination of upfront fees, performance-based
 By frustration
incentives, and royalty payments.
 By agreement
4. Duration: Define the contract's duration, considering Ujenzi Ltd's marketing  By giving notice of termination
objectives and Ms. X's availability.
5. Usage Rights: Specify how Ujenzi Ltd can use Ms. X's name, image, and various aspects of contract performance, discharge, and frustration. Here's a
endorsements for marketing purposes and any limitations on usage. summary of the key points:
6. Obligations of Ujenzi Ltd: Clearly outline Ujenzi Ltd's responsibilities in 1. Performance of Contract:
providing marketing materials, support, and coordination.  The "mirror image" rule requires the contract to be performed
exactly as specified.
7. Termination Clause: Include provisions for contract termination, outlining
 In the case of Cutter vs. Powell, the court rejected the claim for
conditions and consequences for early termination.
wages because the seaman died before completing the contract.
8. Non-Disclosure and Confidentiality: Include clauses to ensure that any 2. Agreement to Discharge:
confidential information shared during the marketing campaign remains  Bilateral discharge: Both parties agree to release each other from
protected. their contractual obligations.
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  Unilateral discharge: One party has not performed its obligations,  Specific Performance: Granted by the court when the subject matter
and consideration must be given for such a discharge. of the contract is unique or specialized, and damages would not be
3. Frustration of Contract: an adequate remedy.
 Frustration occurs when events render contract performance 3. Other Remedies:
impossible or futile.  Rescission: An equitable remedy used in cases of innocent
 Examples of frustration include the destruction of the subject misrepresentation, where the court rescinds the contract.
matter, non-occurrence of a specific event, or government  Mitigation of Loss: The obligation of the innocent party to take
interference. reasonable steps to minimize their losses after a breach.
 Force majeure clauses in contracts address situations beyond the 4. Penalty Clauses:
parties' control and provide for contract discharge.  Courts will enforce reasonable liquidated damages clauses that
 The Law Reform (Frustrated Contracts) Act 1943 governs the represent a genuine pre-estimate of loss.
consequences of frustration, allowing for the recovery of money  Unconscionably high penalty clauses that do not reflect the actual
paid and ceasing further payment. loss suffered may be deemed unenforceable.
4. Discharge by Notice:  Penalty clauses intended to punish a party are not enforceable, as
 Some contracts can be terminated by giving proper notice, such as damages are meant to compensate, not punish.
employment or tenancy contracts. Overall, the remedies for breach of contract aim to restore the innocent party to
5. Discharge by Breach: the position they would have been in had the breach not occurred. The choice of
 Breach of a condition in the contract allows the injured party to treat remedy will depend on the nature of the breach, the specific circumstances, and
the contract as repudiated and seek damages. the jurisdiction's laws
 Breach of a warranty does not terminate the contract but allows the
injured party to sue for damages. Intellectual property rights play a crucial role in protecting the creations and
Please note that these principles are based on common law and the English innovations of individuals and entities. They are intangible and time-bound
statute mentioned, which may have variations in different jurisdictions. It is rights that encompass patents, copyrights, trademarks, and, more recently,
essential to seek legal advice specific to the applicable laws and contracts in each traditional cultural expressions and traditional knowledge. These rights are
case. protected by specific statutes in Kenya, such as the Copyright Act, the Industrial
Property Act, the Trade Marks Act, and the
Remedies for breach of contract, including common law and equitable
remedies, as well as penalty clauses. Here's a summary of the key points: Traditional Knowledge and Traditional Cultural Expressions Act.
1. Common Law Remedies: 1. Copyright:
 Action for damages: The usual remedy for breach of contract  Protects literary, musical, artistic, audio-visual works, sound
compensates the innocent party for losses suffered due to the recordings, and broadcasts.
breach.  The copyright holder has exclusive rights to control reproduction,
 Repudiation: The innocent party can treat the contract as distribution, and communication to the public.
terminated and is not required to return what they obtained from  Copyright protection lasts for fifty years after the author's death or
the breaching party. from the year of first publication (for anonymous works).
2. Equitable Remedies: 2. Patents:
 Injunction: An order granted by the court to prevent a party from  Protects new, inventive, non-obvious, and industrially applicable
continuing a certain act, such as entering into a contract with a third products and processes.
party while still negotiating with another.
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  Grants exclusive ownership for twenty years, during which the 5. Public health-related methods of use or uses of any molecule or substances
patent holder has control over sales, importation, and licensing. for the prevention or treatment of serious health hazards or life-threatening
 The patent holder must disclose the invention and not impose unfair diseases: Certain public health-related methods may be excluded to ensure
contract terms on licensees. affordability and accessibility of essential treatments.
 Compulsory licensing powers may be exercised if the patent holder Additionally, the following are not patentable:
imposes unreasonable restrictions.  Plant varieties: Plant varieties may be eligible for protection under other
3. Trademarks: forms of intellectual property, such as plant breeders' rights.
 Protects the goodwill associated with marketing and advertising by-  Inventions contrary to public order, morality, public health, and safety,
lines, signs, displays, and symbols that represent commercial value. principles of humanity, and environmental conservation: Inventions that may
 Trademarks distinguish goods and services of one entity from those pose a threat to public welfare or go against ethical principles are not
of others. patentable.
 Registration grants exclusive rights to use the trademark for specific Utility Models Certificates:
goods or services.  These offer protection for innovations that provide different and improved
4. Traditional Knowledge and Cultural Expressions: modes of operation for tools, appliances, instruments, or industrial designs.
 The Traditional Knowledge and Traditional Cultural Expressions Act  Utility model protection is granted for a non-renewable term of 10 years and
2016 grants protection for traditional cultural expressions and provides similar rights to a patent owner.
knowledge as a new category of cultural rights. Industrial Design:
 This protection ensures the preservation and recognition of  Industrial designs protect the appearance of a product, whether through
traditional knowledge and cultural expressions. lines, colors, or three-dimensional forms.
Intellectual property laws encourage innovation, creativity, and cultural  Industrial design protection is granted for five years, renewable for two
preservation by providing legal protection to those who contribute to these fields. additional five-year terms.
They strike a balance between incentivizing creators and promoting the public Trade Marks:
interest by allowing certain exceptions, such as fair dealing and freedom of  Trademarks protect the reputation of a business or its goods and/or services.
panorama.  Trademarks are granted for a ten-year renewable period and can also be
protected through common law passing off actions.
Inventions or creations that fall under the following categories are not Technovation:
patentable in Kenya:  Technovation refers to a technology-based solution proposed by an
1. Discoveries, scientific theories, and mathematical methods: These are employee for use by their employer.
considered part of the realm of knowledge and not original inventions.  The rights to the technovation are held by the employer, and the technovator
2. Schemes, rules, or methods for doing business, performing purely mental may gain financial benefits from it.
acts, or playing games: Business methods or mental processes are generally Employees' Rights:
not considered technical inventions.  Employees acting within the scope of their normal duties cannot claim
3. Methods for treatment of the human or animal body by surgery or therapy, intellectual property rights; these rights belong to the employer.
and diagnostic methods related to these treatments: Medical treatments and Subtopic 1: Confidentiality and Non-Disclosure Agreements
diagnostic methods are usually excluded to ensure access to healthcare and  Importance of protecting confidentiality in commercial contracts, especially
prevent monopolies in the medical field. trade secrets and intellectual property rights.
4. Mere presentation of information: Purely informational presentations or data  Inclusion of provisions on the use of confidential information and liability for
are not eligible for patent protection. misuse in contracts.

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 Sharing of benefits of innovations or inventions in contracts involving new Answer: The proper remedy for Eat Out Ltd in this scenario is to claim damages
knowledge creation. for the breach of contract. The damages would compensate Eat Out Ltd for any
 Overview of the Contracts in Restraint of Trade Act, Cap 24 in Kenya, and its losses suffered due to Lake Fish Ltd's failure to deliver on time.
enforcement for non-disclosure agreements. b. Marine Line Ltd, a shipping company, ordered specially made spare parts from
 Recognition of intellectual property rights in the Public Procurement and Forgers Ltd, who manufacture custom-made ship engine parts.
Asset Disposal Act 2015. Answer: In this case, Marine Line Ltd can seek specific performance as the proper
 Prohibition of disclosure of information that would prejudice intellectual remedy. Specific performance would require Forgers Ltd to deliver the specially
property rights in tender proceedings. made spare parts as per the contract.
 Design submissions becoming the property of the procuring entity and the c. Medics Ltd is a biotechnology firm. It has been in a collaborative research
requirement to transfer property rights in designs. project with Black-and-Blue Chemicals Ltd for a special formula to manufacture a
Subtopic 2: Legal Consequences of Terminating Contracts fast-acting cancer drug that can reverse late-stage cancer. It has learned that
 Legal consequences of terminating contracts, including the need to pay Black-and-Blue Chemicals Ltd has licensed the formula to Apothecaries Ltd to
compensation by way of damages for wrongful termination. manufacture the drugs.
 Potential complexities in cases of failure to perform obligations in response to Answer: The proper remedy for Medics Ltd in this situation would depend on the
the other party's failure to deliver. terms of their collaboration agreement. They may consider seeking an injunction
 Differentiating between warranty and condition breaches in contracts and to prevent Black-and-Blue Chemicals Ltd from disclosing or licensing the formula
their impact on termination rights. to Apothecaries Ltd. Alternatively, they might pursue damages for breach of
 Importance of seeking legal advice, especially in international contracts, to contract if Black-and-Blue Chemicals Ltd violated any confidentiality provisions in
understand the risk of legal exposure under different legal systems. their agreement.
3. The coronavirus crisis caused large-scale disruption in global supply chains, as
QUESTIONS AND ANSWERS a result of which many organizations were unable to meet contractual claims.
How may these organizations protect themselves from claims of breach of
Practice Questions: contract by fellow contracting parties?
1. Describe the different ways a contract may be discharged. Answer: Organizations facing difficulties in meeting contractual claims due to the
Answer: Contracts can be discharged through various means, including: pandemic may explore the following options to protect themselves:
a. Performance: When both parties fulfill their contractual obligations, the a. Force Majeure Clause: Check if the contract contains a force majeure clause,
contract is discharged. which typically excuses performance in the event of unforeseen circumstances
b. Agreement: Parties may agree to terminate the contract by mutual consent. beyond the parties' control, such as pandemics or natural disasters.
c. Breach: If one party fails to perform their obligations, the innocent party may b. Renegotiation: Communicate with the other contracting party and try to
choose to terminate the contract due to the breach. renegotiate the terms of the contract to find a mutually acceptable solution.
d. Frustration: If unforeseen events render performance impossible or radically c. Legal Advice: Seek legal advice to understand the options available under
different from what was initially contemplated, the contract may be discharged contract law and force majeure provisions, if applicable, in the jurisdiction where
due to frustration. the contract is governed.
e. Operation of Law: Certain events, such as bankruptcy or death of a party, may d. Document Communication: Keep records of all communication with the other
automatically discharge the contract. party regarding the impact of the pandemic on the contract's performance and
2. Reflecting on the remedies for breach of contract, explain the proper remedy any attempts to mitigate damages.
in each of the following scenarios: 4. What is a 'penalty clause'?
a. Eat Out Ltd, a popular restaurant, ordered 100kg of fish from Lake Fish Ltd. Lake Answer: A 'penalty clause' is a contractual provision that imposes a
Fish Ltd did not deliver on time. predetermined financial penalty or punishment on a party in the event of a
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breach of contract. The purpose of a penalty clause is to deter breach rather than soon as border restrictions were lifted. Unfortunately, while testing a code, one of
compensate for actual damages. Penalty clauses are generally unenforceable as Hi-Tech Ltd.’s experts disclosed a patented formula through a company-wide
they are considered contrary to public policy. Courts are more likely to enforce password, causing the formula to be made public. 269 www.kiseb.or.ke Examine
liquidated damages clauses, where parties agree on a reasonable estimate of all the relevant legal issues arising from the above scenario, and determine how
damages in case of breach, rather than a punitive penalty. they should be resolved. Further, discuss with Biofern Ltd.’s management what
5. Describe the major forms of intellectual property created and protected by contractual clauses they can incorporate to avoid such pitfalls in future.
law.
Answer: The major forms of intellectual property protected by law are: ANSWERS
a. Copyright: Protects original works of authorship, such as books, music, art, and Legal Issues Arising:
software. It grants the creator exclusive rights to reproduce, distribute, display, 1. Contractual Breach: Hi-Tech Ltd breached the contract with Biofern Ltd by
and perform the work. failing to complete the project within the agreed-upon timeframe. This
b. Patents: Protects inventions and discoveries that are novel, non-obvious, and resulted in delay and losses for Biofern Ltd.
useful. It grants the inventor exclusive rights to make, use, and sell the invention 2. Damages for Breach: Biofern Ltd has suffered losses due to the delay caused
for a limited period. by Hi-Tech Ltd. The issue is to determine the appropriate amount of damages
c. Trademarks: Protects symbols, names, or logos that distinguish goods or that Hi-Tech Ltd should pay to compensate Biofern Ltd for its losses.
services of one company from others. It grants the owner exclusive rights to use 3. Intellectual Property Infringement: Hi-Tech Ltd's expert disclosed a patented
and prevent others from using similar marks in the same industry. formula, which caused it to become public. This raises issues of intellectual
d. Trade Secrets: Protects confidential and proprietary information that gives a property infringement, and Biofern Ltd may have grounds to pursue legal
business a competitive advantage. Trade secrets are not disclosed publicly and action for the unauthorized disclosure.
remain protected as long as they are kept confidential. 4. Force Majeure: Hi-Tech Ltd's inability to start the project on time due to
e. Industrial Designs: Protects the unique appearance of a product resulting from border restrictions might be considered a force majeure event. Whether it
its specific features, such as shape, pattern, or color. It prevents unauthorized excuses Hi-Tech Ltd from performance and contractually protects them from
copying of the design for commercial use. liability for delay needs to be examined.
f. Geographical Indications: Protects the names and signs used on products that 5. Confidentiality and Non-Disclosure: The contract between Hi-Tech Ltd and
have a specific geographical origin and possess qualities or reputation attributable Biofern Ltd should have included confidentiality and non-disclosure clauses to
to that origin. protect Biofern Ltd's confidential information, formulas, and processes
g. Plant Variety Protection: Protects new varieties of plants that are distinct, shared with Hi-Tech Ltd during the project.
uniform, stable, and novel, granting the breeder exclusive rights to produce and 6. Limitation of Liability: Biofern Ltd should explore if there are any limitation of
sell the plant variety. liability clauses in the contract that might impact the amount of damages
CASE STUDY they can claim from Hi-Tech Ltd.
Case Study Biofern Ltd v Hi-Tech Ltd Hi-Tech Ltd is an IT company. It has been Resolution:
contracted by Biofern Ltd, a biotechnology company, to develop an IT system that 1. Breach of Contract: Hi-Tech Ltd should accept responsibility for the delay
will digitize its drug manufacturing processes. To be able to do so, it must disclose caused by the inability of its experts to travel and commence work on time.
a range of formulas and processes to Hi-Tech Ltd. HiTech Ltd.’s experts were They should acknowledge the breach and compensate Biofern Ltd for the
unable to travel as a result of corona virus border restrictions to start installing losses incurred due to the delay.
and testing the system, so the project started later than anticipated, well beyond 2. Damages for Breach: Hi-Tech Ltd should engage in negotiations with Biofern
the contract period. Biofern Ltd has insisted it will not pay the full contractual sum Ltd to calculate the actual losses caused by the delay and offer a fair and
because it has suffered losses because of the delay in executing the project. While reasonable amount of damages to compensate Biofern Ltd.
the dispute over payment, continued, Hi-Tech Ltd commenced on the project as
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3. Intellectual Property Infringement: Biofern Ltd can take legal action against
Hi-Tech Ltd for the unauthorized disclosure of the patented formula. Hi-Tech CHAPTER 13: PROJECT MONITORING AND EVALUATION
Ltd should cooperate and rectify the situation, if possible, to mitigate
damages. Collecting and analyzing information to assess the progress and impact of a
4. Force Majeure: Hi-Tech Ltd should demonstrate that the delay was indeed project. Monitoring is the ongoing collection of data during a project to provide
caused by border restrictions beyond their control and triggered a force early indications of progress and the likelihood of achieving project objectives. On
majeure event. This may limit their liability for damages caused by the delay. the other hand, evaluation is a systematic investigation of the project's worth or
5. Confidentiality and Non-Disclosure: In future contracts, Hi-Tech Ltd should significance, comparing actual results against the expected outcomes as per the
include robust confidentiality and non-disclosure clauses to protect Biofern project plan. While monitoring focuses on short-term aspects of the project,
Ltd's proprietary information, ensuring that no unauthorized disclosure can evaluation takes a long-term view, summing up the entire project.
occur. The importance of monitoring and evaluation lies in its ability to measure the
6. Limitation of Liability: Biofern Ltd should carefully review the limitation of efficiency, effectiveness, impact, and viability of a project. Efficiency refers to the
liability clauses in the contract and negotiate to ensure they are not unfairly output per unit of input, while effectiveness evaluates whether the project
restricted from claiming appropriate damages in case of breach. achieved its stated goals and quality standards. Viability assesses the long-term
To avoid such pitfalls in future contracts, Biofern Ltd's management should sustainability of the project's benefits, and impact measures the change in
consider incorporating the following contractual clauses: outcomes intended by the project. By providing a knowledge bank of best
1. Clear and Realistic Deadlines: Include clear and realistic project timelines with practices and pitfalls to avoid, monitoring and evaluation assist in developing
built-in contingencies for unforeseen events, such as pandemics, to minimize project plans and executing projects more effectively.
the risk of delay. Monitoring and evaluation are valuable tools for making budgetary decisions, as
2. Force Majeure Clause: Include a comprehensive force majeure clause that they provide insights for budgeting and cost-control measures. They also play a
specifies events beyond the parties' control and the consequences of such crucial role in project time management, helping ensure projects are completed
events on contract performance. within budgeted timeframes and efficiently utilize resources. Additionally,
3. Liquidated Damages: Consider including liquidated damages clauses, where monitoring and evaluation are essential for stakeholders, including customers,
both parties agree on a predetermined amount of damages in case of specific financiers, and governments, as they provide information on the project's life
breaches, such as delays in project completion. cycle, return on investment, and overall capacity to deliver results.
4. Confidentiality and Non-Disclosure: Strengthen confidentiality and non- Comparison between Monitoring and Evaluation:
disclosure clauses to explicitly prohibit the disclosure of sensitive information Monitoring:
and impose strict penalties for any violations.  Examines ongoing progress.
5. Indemnification: Include an indemnification clause where Hi-Tech Ltd agrees  Focuses on short-term and detailed aspects of the project.
to indemnify Biofern Ltd for any losses or damages resulting from the  Is concerned with present, ongoing activities and implementation.
unauthorized disclosure of intellectual property.  Takes a continuous, forward-view approach throughout the project's life.
6. Intellectual Property Protection: Address the protection and ownership of  Primarily designed for next-stage activity and course correction.
intellectual property rights developed during the project, ensuring that Evaluation:
Biofern Ltd retains full ownership of its formulas and processes.  Examines progress after critical stages or junctures of the project's life.
7. Dispute Resolution Mechanism: Establish a clear and efficient dispute  Takes a long-term and big-picture view of the project as a whole.
resolution mechanism, such as arbitration or mediation, to address any  Focuses on comparing the strategic plan at inception with the actual
future disagreements between the parties promptly and amicably. outcomes.
By incorporating these clauses, Biofern Ltd can better protect its interests and  Has longer time intervals and is done at the beginning or end of project
mitigate potential risks associated with future contractual engagements. stages.
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 Primarily concerned with assessing the overall impact and effectiveness of 12. Project Reports: Project reports provide a comprehensive overview of project
the project. progress, time, budget, quality, and outcomes achieved, serving as valuable
lessons for future projects and evaluation of project success.
The essentials of project documentation outlined in the provided text are critical By implementing these essential documentation practices, project managers can
for effective project management and successful project outcomes. To enhance project efficiency, identify potential issues early, and effectively manage
summarize: risks throughout the project's life cycle.
1. Secure Storage and Back-up: Ensure all project information is securely stored
and regularly backed up to prevent data loss and ensure accessibility when Evaluation tools are essential for assessing the progress and success of a project.
needed. These tools help project managers gather relevant data and measure project
2. Background Documentation: Project documentation should provide a outcomes against predetermined objectives. Some common evaluation tools
background against which achievements and progress can be measured and used in project management include:
evaluated. 1. Logical Framework (Log Frame): The logical framework is a planning and
3. Segregation of Confidential Information: Properly segregate and protect evaluation tool that presents objectives, indicators, means of verification,
confidential information to maintain its confidentiality and prevent assumptions, and comments in a tabular or graphic form. It helps establish
unauthorized access. the link between different levels of objectives and expected outcomes,
4. Accurate Tracking and Capturing of Information: Ensure accurate and providing a reference point for evaluating the project's success.
comprehensive tracking of all relevant project information, especially in the 2. Surveys and Questionnaires: Surveys and questionnaires are used to collect
case of mid-stream changes to the project. quantitative data from project stakeholders. They provide valuable
5. Documentation Manager: Designate a documentation manager responsible information on various aspects, such as customer satisfaction, feedback from
for maintaining and organizing all project documentation. team members, or community engagement.
6. Usefulness Beyond Project Completion: Project documentation serves not 3. Interviews and Focus Groups: These qualitative data collection methods
only for final project reports and evaluation purposes but also for tracking involve direct interactions with stakeholders to gain deeper insights into their
progress and providing vital feedback throughout the project's lifecycle. perspectives, experiences, and attitudes related to the project.
7. Legal and Evidentiary Value: Proper documentation becomes crucial in the 4. Key Performance Indicators (KPIs): KPIs are specific and measurable metrics
event of legal claims, disputes, or regulatory compliance issues. that reflect the performance and progress towards project goals. They help
8. Project Statement or Charter: The project charter serves as the foundation of project managers track important aspects of the project's success.
the project, outlining its vision, scope, purpose, and anticipated outcomes. 5. Cost-Benefit Analysis (CBA): CBA is used to assess the economic viability of a
9. Project Management Plan: The project management plan details project by comparing its costs to the expected benefits or returns.
management functions, policies, procurement, risks, communication, cost 6. Risk Analysis: Risk analysis tools help identify and assess potential risks and
breakdown, financial management, and schedules of works. uncertainties that may impact the project's success. This enables project
10. Work Plan and Gantt Charts: The work plan breaks down schedules into managers to plan appropriate risk mitigation strategies.
specific tasks and their sequential progress. Gantt charts and network 7. Progress Reports and Dashboards: These tools provide real-time data and
analysis methods like CPM and PERT are useful tools for organizing project visual representations of project progress, enabling stakeholders to quickly
work plans and timelines. understand the project's status.
11. Risk Identification and Management Plan: Identify potential project risks and 8. Peer Review and Expert Assessment: Inviting experts or peers to assess the
outline mitigation measures to address them, especially in cases where project's progress and outcomes can provide valuable external insights and
regulatory compliance is required. validate the project's achievements.

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9. Benchmarking: Benchmarking involves comparing the project's performance Both qualitative and quantitative data collection methods have their strengths
against industry standards or similar projects to gauge its competitiveness and weaknesses. The choice of method depends on the research objectives, the
and success. nature of the data required, the resources available, and the research context.
10. Lessons Learned and After-Action Reviews: These tools involve reflection on Often, researchers use a combination of both qualitative and quantitative
the project's successes and challenges to identify valuable lessons for future methods to triangulate data and gain a more comprehensive understanding of the
improvements. phenomenon being studied.
By utilizing appropriate evaluation tools, project managers can effectively
measure and analyze project progress, identify areas for improvement, and make sampling techniques. Let's dive a bit deeper into each sampling method:
informed decisions to ensure the project's success. 1. Random Sampling:
 In random sampling, every member of the population has an equal
Data collection methods can be broadly categorized into qualitative and chance of being selected for the sample.
quantitative methods, as you mentioned. Here's a more detailed explanation of  It ensures that each element has an unbiased and independent
both types: chance of being included in the sample.
1. Qualitative Data Collection Methods: a. Interviews: Conducting one-on-one  Simple random sampling can be done using random number
or group interviews with individuals to gather detailed and in-depth generators or drawing lots.
information. b. Focus Groups: Bringing together a small group of people with  It is suitable when the target population is relatively homogeneous
shared characteristics or experiences to discuss a specific topic. c. and there is no need to divide it into subgroups.
Observations: Directly observing and recording behaviors, events, or 2. Systematic Sampling:
phenomena without intervening or influencing the subjects. d. Document  Systematic sampling involves selecting every nth element from the
Analysis: Reviewing and analyzing existing documents, records, reports, or population list after a random start.
other written materials to extract relevant information. e. Case Studies: In-  For example, if you want a sample of 100 from a population of 1000,
depth examination of a specific case or a small number of cases to gain a you would select every 10th individual (1000/100).
comprehensive understanding of the subject. f. Narrative Analysis: Analyzing  It is less time-consuming than simple random sampling and can
written or spoken narratives to identify recurring themes, patterns, or provide a representative sample if the population is well-organized.
insights. g. Ethnography: Immersing the researcher in the culture or 3. Stratified Sampling:
environment being studied to gain an insider's perspective.  In stratified sampling, the population is divided into subgroups or
2. Quantitative Data Collection Methods: a. Surveys: Administering strata based on specific characteristics (e.g., age, gender, income).
questionnaires with pre-defined questions to a large sample of respondents  Random samples are then taken from each stratum in proportion to
to collect structured data. b. Experiments: Controlled studies where variables its representation in the overall population.
are manipulated to test cause-and-effect relationships. c. Observational  It ensures representation from each stratum and can provide more
Studies: Systematically observing and recording data from subjects in their accurate estimates for subgroups.
natural setting without direct intervention. d. Content Analysis: Analyzing and  Proportional and disproportionate stratified sampling differ in how
quantifying the content of media, documents, or other sources to draw the sample size is allocated to each stratum.
conclusions. e. Statistical Data: Collecting numerical data from various 4. Snowball Sampling:
sources, such as official records, databases, or financial reports. f.  Snowball sampling is a non-probability sampling method used when
Questionnaires: Structured sets of questions designed to collect specific the target population is hard to reach or identify.
information from respondents. g. Tests and Assessments: Using standardized  The researcher starts with a few initial participants and then asks
tests and assessments to measure specific attributes or skills of individuals or them to refer other potential participants.
groups.
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  This technique is useful for studying hidden or marginalized Data analysis methods for quantitative data include calculating averages (mean,
populations where no clear sampling frame is available. median, mode), percentages, ratios, and correlation coefficients. Statistical
 However, it may introduce biases and is not suitable for generalizing software packages like SPSS, Excel, or R are often used for data analysis to
findings to the entire population. generate descriptive statistics and conduct inferential analysis (e.g., hypothesis
Each sampling method has its advantages and limitations, and the choice of the testing).
sampling technique depends on the research objectives, available resources, and For qualitative data analysis, researchers use techniques such as content analysis,
the nature of the target population. Researchers should carefully consider the thematic analysis, or narrative analysis to identify common themes, patterns, and
potential biases and the level of representativeness they aim to achieve when meanings in the data. The process involves coding, categorizing, and interpreting
selecting a sampling method. textual data to draw meaningful conclusions.
When presenting data, researchers should consider the audience's needs and
Sampling Frame Sampling frame refers to the list from which the targets of preferences. Diagrammatic presentations are visually appealing and easier to
research can be drawn from. It may be employees in a firm, or batch of products, grasp for some audiences, while tabular presentations provide detailed
customer lists, and so on. information for others. Textual presentations add context and clarity to the
findings.
data analysis and presentation methods. Let's further elaborate on the In summary, the choice of data analysis and presentation methods depends on
methods: the nature of the data, research objectives, and the intended audience.
1. Diagrammatic Presentation of Data: Combining various methods can provide a comprehensive and informative
 Graphs, pie charts, bar charts, line diagrams, and other visual representation of the data and its implications.
representations are used for diagrammatic data presentation.
 Graphs and line diagrams are useful for showing trends, patterns, stakeholder involvement and the components of a monitoring and evaluation
and comparisons between different variables over time or across report. Let's summarize the key points:
categories. Stakeholder Involvement:
 Pie charts represent parts of a whole and show the proportion of 1. Stakeholders are individuals or entities with an interest in a project, including
each category in the entire dataset. project sponsors, financiers, customers, local communities, project teams,
 Organograms are used to depict organizational structures and project managers, and government authorities.
hierarchy. 2. In research, stakeholders can be the target population for sampling or
2. Tabular Presentation of Data: consumers of research information.
 Tabular presentation organizes data in rows and columns, making it 3. In project management, stakeholders are individuals or groups affected by or
easy to compare values and extract specific information. involved in the project.
 Tables are especially useful for presenting numerical data with 4. Key stakeholders should be involved and consulted appropriately throughout
multiple variables or categories. the project to ensure its success.
3. Textual Presentation of Data: Monitoring and Evaluation Reports:
 Textual presentation involves conveying information in written or 1. The monitoring process assesses specific aspects of the project, while
narrative form. evaluation looks at the project as a whole.
 It is commonly used for qualitative data analysis, where researchers 2. A monitoring and evaluation report should be prepared at the end of the
explain the context, themes, and patterns observed in the data. exercise to provide a comprehensive assessment of the project's progress
 It provides more in-depth explanations and interpretations of the and outcomes.
findings. 3. The report should include a table of contents, table of abbreviations and
acronyms, glossary of technical terms, executive summary, introduction,
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 body, conclusions and recommendations, lessons learned, and an appendix 2. Describe the importance of monitoring and evaluation:
or annex. Monitoring and evaluation are crucial for the following reasons:
4. The executive summary provides a concise overview of the report, a. Performance Assessment: They provide an objective assessment of the
highlighting key points and findings. project's progress, allowing stakeholders to gauge its effectiveness and make
5. The body of the report contains detailed information about the project's informed decisions.
objectives, activities, output, resource allocations, challenges faced, b. Accountability: They hold project managers and stakeholders accountable for
corrective actions taken, milestones, success indicators, and overall timelines. achieving the project's objectives and using resources efficiently.
6. The conclusions and recommendations section summarizes the project's c. Learning and Improvement: They help identify strengths and weaknesses,
cycle and suggests improvements and future actions. providing valuable insights for continuous improvement in future projects.
7. The lessons learned section is critical for guiding future projects, discussing d. Decision Making: They support evidence-based decision-making by providing
problems faced, actions taken, areas for improvement, and reasons behind data and analysis to inform project adjustments and resource allocations.
decision-making. e. Risk Management: They allow early detection of potential issues and risks,
8. The appendix or annex includes additional reference materials, enabling timely intervention and mitigation strategies.
questionnaires, data collection tools, work schedules, and templates used f. Resource Allocation: They help ensure that resources are allocated optimally
during the project. and that activities are aligned with project goals.
A well-prepared monitoring and evaluation report is essential for understanding g. Stakeholder Engagement: They foster transparency and inclusion, as
the project's performance, identifying areas of improvement, and providing stakeholders are involved throughout the process, increasing ownership and
valuable insights for future projects. support for the project.
3. Factors to consider when designing a monitoring and evaluation framework
QUESTIONS AND ANSWERS for:
a. A large construction project for a mall:
1. Distinguish between ‘evaluation’ and ‘monitoring’:  Key Performance Indicators (KPIs) related to construction progress, safety,
Monitoring: and quality.
 Monitoring is a continuous and systematic process of collecting data and  Monitoring of construction timelines, budget, and adherence to architectural
information during the implementation of a project or program. plans.
 It involves the regular tracking of project activities, outputs, and progress  Regular site inspections and progress reports by a dedicated monitoring
against the predefined indicators and targets. team.
 The main purpose of monitoring is to provide real-time information on the  Evaluation of the project's impact on the local community and environment.
project's performance and identify any deviations from the planned course. b. A project for the development of a new manufacturing plant:
Evaluation:  KPIs related to production capacity, efficiency, and quality.
 Evaluation is a systematic assessment of the project's overall performance  Monitoring of production processes, machinery performance, and resource
and its outcomes after its completion. utilization.
 It involves the analysis of the project's effectiveness, efficiency, relevance,  Evaluation of the plant's contribution to job creation and economic
impact, and sustainability. development.
 The primary goal of evaluation is to assess the project's success in achieving c. Reviewing an organization’s procurement plan:
its objectives and to identify lessons learned for future improvements.  Monitoring of procurement timelines, vendor performance, and compliance
In summary, monitoring is an ongoing process that tracks progress during project with procurement policies.
implementation, while evaluation is a retrospective analysis that assesses the  Evaluation of cost savings achieved through effective procurement strategies.
project's performance after completion.
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 Assessing the overall effectiveness of the procurement process in meeting  Assumptions are conditions or factors that are believed to be true but have
the organization's needs. not been fully validated or proven.
4. Highlight the contents of a monitoring and evaluation report:  They are critical dependencies that underlie the project's planning and
A monitoring and evaluation report typically includes the following sections: success.
 Executive Summary: A concise overview of the report's key findings and  Assumptions need to be carefully examined, and if proven incorrect,
recommendations. adjustments to the project plan may be required.
 Introduction: Background information on the project and its objectives. In summary, risks are potential negative events that may happen during the
 Methodology: Description of the data collection methods and evaluation project, while assumptions are the foundational beliefs on which the project plan
approach used. is based.
 Findings: Detailed analysis of project performance, outcomes, and 7. Describe the importance of involving stakeholders in a monitoring and
achievements against set indicators. evaluation process:
 Lessons Learned: Identification of challenges, successes, and Involving stakeholders in the monitoring and evaluation process is vital for the
recommendations for future improvements. following reasons:
 Conclusions and Recommendations: A summary of the evaluation's main  Stakeholder Engagement: Involving stakeholders ensures their active
conclusions and suggested actions. participation and ownership of the process, increasing its credibility and
 Annexes/Appendices: Supporting materials such as data collection tools, acceptance.
interview transcripts, and additional data.  Diverse Perspectives: Different stakeholders bring varied perspectives and
5. What are the objectives of project monitoring and evaluation? insights, leading to a comprehensive and well-rounded assessment of the
The objectives of project monitoring and evaluation are as follows: project's performance.
 To track and assess the progress of project activities in achieving its  Data Validity: Stakeholders' involvement in data collection enhances the
objectives. accuracy and reliability of the information gathered.
 To identify any deviations from the planned course and take corrective  Feedback and Learning: Stakeholder engagement allows for feedback on
actions. project effectiveness, challenges, and potential improvements, leading to
 To ensure accountability and responsible use of project resources. continuous learning and improvement.
 To learn from project experiences and apply lessons to future projects.  Decision-Making: Engaged stakeholders are more likely to use evaluation
 To provide evidence-based information for decision-making and resource findings for evidence-based decision-making and resource allocation.
allocation.  Transparency and Accountability: Involving stakeholder’s fosters
 To assess the project's overall effectiveness, efficiency, relevance, and transparency and accountability in project implementation and evaluation
impact. processes.
 To foster transparency, stakeholder engagement, and project ownership. 8. Outline the issues you would consider in the final evaluation of a
6. Explain the difference between project risks and assumptions: procurement consultancy project:
Project Risks: In the final evaluation of a procurement consultancy project, the following issues
 Risks are potential events or circumstances that can have adverse effects on should be considered:
the project's objectives or outcomes.  Achievement of Objectives: Assessing whether the project's objectives
 They are uncertainties that may or may not occur during the project's related to procurement efficiency, cost savings, and vendor performance
execution. were met.
 Project risks are typically identified, analyzed, and managed to minimize their  Compliance: Evaluating the project's adherence to procurement policies,
impact on the project. regulations, and best practices.
Assumptions:
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 Impact: Analyzing the consultancy's contribution to improved procurement project. b. Design a monitoring and evaluation plan for the project, taking into
processes, decision-making, and overall organizational performance. account SMART goals relevant to the type of project.
 Stakeholder Satisfaction: Gathering feedback from key stakeholders to gauge
their satisfaction with the consultancy's services and outcomes. ANSWER
 Lessons Learned: Identifying successes, challenges, and recommendations for
future procurement projects. Project Documentation Portfolio:
 Cost-Benefit Analysis: Evaluating the cost-effectiveness of the consultancy in 1. Project Charter:
terms of achieved benefits and value for money.  A document that formally authorizes the project and defines its objectives,
9. Discuss the disadvantages of using oral interviews as a data collection scope, and key stakeholders.
approach in project evaluation:  Includes high-level project details, such as project purpose, deliverables, and
While oral interviews can be a valuable data collection approach, they also have initial timeline.
some disadvantages:  Signed by project sponsor(s) and key stakeholders.
 Bias: The interviewer's demeanor or leading questions may influence the 2. Project Management Plan:
respondent's answers, leading to biased data.  A comprehensive document outlining how the project will be executed,
 Limited Sample Size: Conducting oral interviews can be time-consuming and monitored, and controlled.
resource-intensive, making it challenging to include a large and diverse  Includes detailed project scope, schedule, budget, resource allocation, risk
sample size. management plan, and communication plan.
 Subjectivity: Oral interviews rely on the subjective interpretation of 3. Risk Register:
responses, leading to potential misinterpretations.  A document that identifies and assesses potential risks to the project's
 Interviewer Skill: The quality and accuracy of the data collected depend on success.
the interviewer's skill in asking relevant questions and probing for detailed  Includes a list of risks, their impact, likelihood, and proposed mitigation
responses. strategies.
 Lack of Anonymity: Respondents may be hesitant to provide honest feedback, 4. Procurement Documentation:
fearing repercussions if their responses are not anonymous.  Contracts and agreements between Verona Ltd and Sigma Construction Ltd,
 Recording and Transcription: Oral interviews require accurate recording and detailing project deliverables, timelines, and payment terms.
transcription, which can be labor-intensive and prone to errors. 5. Project Schedule:
To mitigate these disadvantages, interviewers should be trained, questions should  A detailed timeline outlining the sequence and duration of project activities
be carefully designed and milestones.
CASE STUDY  Shows dependencies and critical paths to manage project timeline efficiently.
Case Study: Get the Project Going Verona Ltd is an Italian company that wishes to 6. Budget and Cost Estimates:
establish a pharmaceutical products manufacturing plant in Kenya. After extensive  A detailed breakdown of project costs, including materials, labor, equipment,
negotiations, the company settles on Ujenzi Ltd, Sigma Construction Ltd, and and other expenses.
Super Build Ltd as the possible candidates to build the plant. After conducting a  Allows for effective cost management throughout the project.
mini-competition among the three candidates, it settles on Sigma Construction 7. Quality Management Plan:
Ltd. Sigma is a Turkish company with a good track record in building and installing  A document outlining the quality standards and processes to ensure the
pharmaceutical plants in many countries around the world, although it has never pharmaceutical plant meets the required specifications and regulatory
undertaken such works in Kenya. Sigma has engaged you as its project standards.
management lead. Required: a. Design a project documentation portfolio for the 8. Communication Plan:

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 Outlines the communication channels, frequency, and stakeholders involved 5. Stakeholder Engagement:
in project updates and progress reporting.  Regular communication with Verona Ltd and key stakeholders to ensure
9. Project Status Reports: alignment with project goals and expectations.
 Regular reports documenting the project's progress, accomplishments, 6. Lessons Learned:
challenges, and deviations from the plan.  Ongoing documentation of lessons learned to improve project
10. Lessons Learned Documentation: implementation and future endeavors.
 A record of lessons learned throughout the project, providing valuable By designing a comprehensive monitoring and evaluation plan, the project
insights for future projects. management lead can ensure that the project stays on track, meets its objectives,
b. Monitoring and Evaluation Plan: and addresses any challenges effectively to achieve successful project completion.
Objective: To establish a state-of-the-art pharmaceutical products manufacturing
plant in Kenya within two years, adhering to quality standards and regulatory
requirements. CHAPTER 14: PROJECT CLOSURE
SMART Goals: Regardless of whether a project was successful or not, proper closure is essential
1. Specific: Establish a manufacturing plant capable of producing a variety of for effective project management. Let's explore the tasks involved in project
pharmaceutical products. completion:
2. Measurable: Achieve a minimum production capacity of 100,000 units per 1. Collating Project Records: All project-related information, including changes
month. to specifications, budgets, staff, and subcontractors, must be compiled and
3. Achievable: Obtain all necessary permits and regulatory approvals for organized. Proper documentation facilitates the review of lessons learned
pharmaceutical manufacturing in Kenya. and financial closure.
4. Relevant: Ensure the plant's product range meets the healthcare needs of the 2. Administrative Closure: This entails preparing a project report and
Kenyan market. transferring resources and staff back to the project owner or their respective
5. Time-bound: Complete construction and installation within the stipulated departments. If any staff need to be terminated, proper notice and
two-year timeline. settlement of dues should be ensured.
Monitoring and Evaluation Components: 3. Contract Closure: The project manager reviews contractual obligations with
1. Performance Metrics: suppliers and determines whether they have been met. Any unresolved
 Monthly production output in units. issues, especially those impacting quality standards, may prolong the contract
 Compliance with quality standards and regulatory requirements. closure process.
 Adherence to the project schedule and budget. 4. Financial Review: The project team analyzes the budgeted figures against
2. Data Collection Methods: actual expenditures to understand variances. This analysis provides insights
 Regular site visits and inspections by project management lead (you) and into the reasons for cost overruns and helps in financial planning for future
Sigma's project team. projects.
 Progress reports from Sigma Construction Ltd. 5. Financial Audit: A financial audit is conducted as part of the financial closure
 Quality control checks by an independent third party. process to ensure all costs and liabilities are accounted for accurately.
3. Reporting and Review: 6. Staff Reassignment: Project staff members, whether contractual or seconded,
 Monthly progress reports submitted to Verona Ltd and relevant stakeholders. will need to be reassigned to their respective roles or projects. Consideration
 Quarterly project review meetings to discuss progress and address any issues. should be given to the psychological impact of the transition on the staff.
4. Risk Management: 7. Project Report: A comprehensive project report is prepared, summarizing all
 Regular risk assessments to identify potential threats to project objectives. aspects of the project, including achievements, challenges, financial review,
 Mitigation strategies for identified risks. and lessons learned.
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8. Management Review: The organization conducts a management review of  Understanding intellectual property rights related to project
the project using the report, considering feedback from stakeholders and information and data
customers (if applicable).  Ensuring confidentiality and data protection
Effective project closure ensures a smooth winding down, identifies areas for  Compliance with relevant laws (e.g., Protection of Traditional
improvement in future projects, and allows for proper financial evaluation and Knowledge and Traditional Cultural Expressions Act 2016, Data
legal compliance. By completing these tasks meticulously, project managers can Protection Act, 2019)
achieve a successful project closure and contribute to improved project If you have any specific questions or need further information on any of these
management practices in the future. subtopics, feel free to ask!
Project Closure and Client's Acceptance:
1. Importance of Client's Acceptance QUESTIONS AND ANSWERS
 Ensuring compliance with formal handover processes 1. Describe the project completion process. The project completion process
 Inclusion of relevant clauses in the contract refers to the final phase of a project's life cycle, where all project activities are
 Preparing a checklist for documentation and handover tasks concluded, and the project is formally closed. The process typically includes
 Addressing post-project support needs (e.g., technical installations, the following steps: a. Handover: Ensuring that all deliverables and outputs
training, monitoring) are transferred to the client or end-user. b. Client Acceptance: Obtaining
2. Project Audit and Reviews formal acceptance from the client that the project's objectives have been
 Involvement of all stakeholders in the project review met. c. Documentation: Organizing and archiving all project documentation,
 Tracing the project's progress from inception to handover including contracts, reports, and records. d. Financial Closure: Reviewing
 Components of the audit and review: financials, settling outstanding payments, and conducting final accounting. e.
 Review of financial costs, especially overruns Resource Release: Reassigning project team members to other projects or
 Evaluation of human resource deployment roles. f. Lessons Learned: Conducting a thorough review of the project to
 Time taken for project completion identify successes, failures, and lessons learned for future projects. g. Project
 Addressing failures and changes in project design or Report: Preparing a comprehensive project report that includes project
progress details, achievements, challenges, and recommendations. h. Celebrating
 Lessons learned from the entire project experience Success: Acknowledging the project team's efforts and celebrating the
3. Project Completion Reports successful completion of the project.
 Determining the need for a project report (typically required for 2. Explain the importance of a project completion report. A project completion
NGO or donor-funded projects) report is crucial for various reasons:
 Utilizing checklists for compliance with contractual and statutory  Documentation: It serves as a comprehensive record of the project,
standards including its objectives, processes, outcomes, and lessons learned.
 Contents of the project report:  Evaluation: It allows stakeholders to assess the project's success in
 Preliminary pages (title page, table of contents, glossary, meeting its goals and objectives.
abbreviations)  Future Planning: The report provides valuable insights and lessons
 Introduction (project background, timelines, expected learned that can inform future project planning and decision-
outcomes) making.
 Progress of the project (resources, problems, solutions)  Accountability: It holds the project team accountable for the results
 Risk assessments (financial, legal, technical, political risks) and outcomes of the project.
 Lessons learned section (successes, failures, consequences)
4. Safeguarding Proprietary Knowledge
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  Communication: It enables effective communication with 5. What are the essential contents of a project commissioning report? A project
stakeholders, clients, and sponsors about the project's achievements commissioning report typically includes the following essential contents: a.
and impact. Introduction: Providing background information on the project, its objectives,
 Reference: It serves as a reference document for similar projects in and scope. b. Commissioning Process: Describing the steps taken to
the future, aiding in knowledge transfer and continuity. commission the project, including testing, verification, and handover
3. ‘The project completion process starts as soon as the project commences.’ procedures. c. System Performance: Evaluating the performance of various
With regard to the importance of documentation, discuss the truth or systems and components installed in the project. d. Defects and Corrections:
otherwise of this statement. The statement is true in the context of project Documenting any defects or issues found during the commissioning process
management. The project completion process should be planned and and the corrective actions taken. e. Verification of Standards: Ensuring that
considered from the project's initiation phase. Proper documentation is the project complies with relevant standards, regulations, and contractual
crucial throughout the project life cycle to ensure an efficient and effective requirements. f. Safety and Quality Assurance: Assessing safety measures and
closure process. Early attention to documentation allows for better quality control processes implemented during commissioning. g. Client
organization, smoother handover, and more accurate evaluation during Acceptance: Obtaining formal acceptance from the client or end-user that the
project closure. project is ready for operation. h. Lessons Learned: Identifying lessons learned
Documentation from the project initiation phase may include: from the commissioning process for future projects. i. Recommendations:
 Project Charter: Outlining project objectives, scope, stakeholders, and initial Providing recommendations for improvements or adjustments based on
plans. commissioning findings.
 Project Plan: Detailing tasks, timelines, resources, and responsibilities. 6. Case Study: Close the Project Since the response for this question requires a
 Contracts and Agreements: Formalizing commitments with vendors, template with relevant documentation and steps for the project closure
suppliers, and stakeholders. process, it will be more extensive and involve various elements. It would be
 Risk Register: Identifying potential risks and mitigation strategies. best to develop a comprehensive template separately, considering the
Throughout the project, ongoing documentation of progress, changes, and specific requirements and characteristics of the project (Matunda Ltd's fruit
decisions ensures a clear record of the project's journey. This documentation will juice manufacturing plants across East Africa). If you need assistance with
be instrumental during project closure, as it provides a basis for evaluating creating such a template or have any specific questions related to the case
success, analyzing challenges, and identifying areas for improvement. study, please let me know, and I'll be happy to help.
4. Discuss the duties of the procurement department during the project closure
process. During the project closure process, the procurement department CHAPTER 15: EMERGING ISSUES AND TRENDS IN PROJECT AND CONTRACT
plays several important roles: a. Contract Closure: Ensuring that all MANAGEMENT
contractual obligations are met, including final payments to vendors and Emerging Issues and Trends in Project and Contract Management:
suppliers. b. Vendor Evaluation: Assessing the performance of vendors and 15.1.1 Socio-Cultural Issues:
suppliers, including adherence to quality, timelines, and contractual terms. c.  The impact of culture on project and contract management.
Records Management: Organizing and archiving all procurement-related  Considerations of social and cultural perceptions in multi-national projects.
documentation, including purchase orders, contracts, and invoices. d.  Managing objections and reputational risks related to controversial business
Resource Release: Informing vendors and suppliers about the completion of partners.
the project and releasing any resources or assets on loan or lease. e. Claims 15.1.2 Technological Issues:
and Disputes: Handling any outstanding claims or disputes related to  The role of information and communications technology in project
procurement contracts and resolving them in a timely manner. f. Lessons management.
Learned: Identifying procurement-related lessons learned from the project  Advantages of real-time monitoring and remote collaboration.
and documenting them for future reference.  Data security and ethical considerations in the digital era.
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 Impact of technology on decision-making and project efficiency.  Global economic uncertainties and geopolitical tensions affecting project
15.1.3 Economic Issues: funding and execution.
 The influence of global economic integration on project management.  Shortage of skilled project managers and team members.
 Understanding and navigating different legal systems in cross-country  Stakeholder expectations and demands for sustainable and socially
projects. responsible projects.
 Compliance with trading bloc agreements and regional regulations.  Balancing time, cost, and scope constraints in project delivery.
 Economic implications of environmentally conscious projects. Solutions:
15.1.4 Environmental Issues:  Continuous learning and upskilling of project managers to stay abreast of
 The importance of addressing climate change and environmental concerns in emerging technologies and trends.
projects.  Emphasizing collaboration and effective communication across diverse
 Environmental impact assessments and mitigation measures. project teams.
 Legal requirements and consequences for projects with an ecological  Establishing risk management strategies to anticipate and mitigate economic
footprint. and political uncertainties.
15.1.5 Political Issues:  Developing talent pipelines and investing in training programs for project
 Handling political challenges and competing interests in project management. professionals.
 Dealing with political crises and their impact on projects.  Incorporating sustainability and CSR principles into project planning and
 Addressing corruption risks and political uncertainties in certain regions. execution.
15.2 Response Mechanisms to Emerging Trends:  Implementing agile project management methodologies to adapt to changing
 Emphasizing the importance of continuous learning and investment in project requirements.
employee development. 2. Effect of the Coronavirus Crisis on Project Management:
 Hiring skilled staff and experts to address new challenges and risks.  Disruptions in supply chains and procurement of project resources.
 Focusing on soft skills to navigate diverse and culturally sensitive  Remote working challenges and communication difficulties.
environments.  Delayed project timelines and budget overruns.
 Utilizing new technologies and AI-driven project management tools.  Increased health and safety measures affecting project site operations.
 Identifying opportunities in addressing emerging challenges (e.g., reducing  Shift in project priorities and reallocation of resources to COVID-19 related
carbon footprint, tracking progress, etc.). initiatives.
Overall, it is essential for organizations and project managers to be proactive and 3. Impact of Climate Change on Project Management Industry:
adaptive in responding to these emerging issues and trends. By staying informed,  Necessity to incorporate climate change considerations in project planning
investing in knowledge, and embracing innovative solutions, they can effectively and risk assessments.
navigate the changing landscape of project and contract management, leading to  Adapting projects to withstand extreme weather events and changing
successful outcomes and enhanced competitiveness. environmental conditions.
 Implementing sustainable practices and reducing carbon footprint in project
QUESTIONS AND ANSWERS execution.
1. Challenges and Solutions for Project Managers and Sponsors in the 21st  Compliance with environmental regulations and obtaining environmental
Century: approvals for projects.
Challenges:  Addressing stakeholder concerns and expectations regarding climate change
 Rapidly changing technology and the need to adapt to new project impacts.
management tools and methodologies. 4. Cultural Issues in International Project Environments:
 Increasing complexity and interconnectedness of global projects.  Language barriers and communication challenges.
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 Differing work ethics, norms, and values. keen on exploiting the coal as it will provide a cheap source of energy to enable
 Cultural misunderstandings and misinterpretations. Tanga industrialise. Local environmental groups in Simba as well as international
 Varying decision-making styles and approaches. environmental NGOs are opposed to the project. Draft a report for the
 Social and hierarchical dynamics influencing project team interactions. management of Colliery Ltd., setting out the challenges the company is likely to
Solutions: face, and what factors the company should consider before deciding whether to
 Cross-cultural training and cultural awareness programs for project team go ahead with the project or not.
members.
 Encouraging open communication and fostering a culture of respect and ANSWER
inclusivity. Report on the Proposed Coal Mining Project in Simba, Tanga
 Engaging local experts and consultants to navigate cultural nuances. Introduction: This report aims to provide an overview of the challenges and
 Emphasizing teamwork and collaboration to bridge cultural gaps. considerations faced by Colliery Ltd. regarding the proposed coal mining project in
 Facilitating team-building activities to strengthen relationships and Simba, Tanga. The project's context, including the recent civil war, the presence of
understanding. different tribes, and opposition from environmental groups, adds complexity to
5. Key ESG Issues in Engineering and Construction Projects in Kenya: the decision-making process. The report will highlight key challenges and factors
 Environmental: Adherence to environmental impact assessments, waste the company should consider before deciding whether to proceed with the
management, and sustainable resource use. project.
 Social: Addressing community concerns, labor rights, health and safety Challenges:
standards for workers, and community engagement. 1. Socio-Political Sensitivity: The recent civil war and the historical conflict
 Governance: Ensuring transparency, ethical business practices, and between the Wadau and Wagomvi tribes may create social and political
compliance with regulations and industry standards. tensions in Simba. Colliery Ltd. must navigate these complexities carefully to
Solutions: ensure that the project does not exacerbate existing divisions and triggers
 Conducting comprehensive ESG risk assessments and integrating conflicts.
sustainability goals into project planning. 2. Environmental Concerns: Local environmental groups and international NGOs
 Collaborating with local communities and stakeholders to address social oppose the project due to its potential impact on the environment. Coal
impacts and foster positive relationships. mining activities may lead to deforestation, habitat destruction, and water
 Implementing robust governance practices and establishing clear pollution, raising ecological concerns among stakeholders.
accountability for ESG performance. 3. Community Opposition: The Wadau tribespeople, who predominantly occupy
 Regular monitoring and reporting on ESG performance to maintain Simba, might resist the project due to concerns over land rights, cultural
transparency and improve accountability. heritage, and environmental degradation. Gaining the social license to
operate will be challenging without addressing these issues.
CASE STUDY 4. Regulatory Compliance: The coal mining project will likely require compliance
Case Study: To mine...or not to mine? Colliery Ltd. is an energy company that with numerous environmental, social, and labor regulations imposed by both
specializes in coal mining and converting it into energy. Massive coal deposits the national government and international bodies. Non-compliance could
have been found in Simba, a rural area in Tanga, an East African country classified result in legal liabilities and reputational damage.
among the least developed countries. Tanga has just emerged from a civil war, 5. Security Risks: Given the recent civil war, the region may still be politically
and a government of national unity incorporating rebel forces and the sensitive and prone to security risks. Colliery Ltd. needs to assess the security
government has been formed. Simba is predominantly occupied by the Wadau situation in Simba and take appropriate measures to safeguard the project
tribespeople, from whom the rebel forces were drawn fighting the government, and its personnel.
which was seen as representing the Wagomvi tribespeople. The government is Factors to Consider:
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1. Environmental Impact Assessment (EIA): Conduct a comprehensive EIA to
assess the potential environmental impacts of the project. Develop a detailed
plan for mitigating adverse effects and preserving the local ecosystem.
2. Stakeholder Engagement: Engage with the Wadau tribespeople, local
communities, and environmental groups transparently and respectfully.
Address their concerns, seek feedback, and involve them in decision-making
processes to gain their support.
3. Political Stability: Monitor the political situation in Tanga closely, considering
the recent formation of a government of national unity. Establish contingency
plans to manage any political uncertainties that may arise during the project.
4. Corporate Social Responsibility (CSR): Implement robust CSR initiatives that
benefit the local communities and address their needs. This may include
supporting education, healthcare, and infrastructure development.
5. Economic Viability: Assess the long-term economic viability of the coal mining
project, taking into account fluctuating coal prices, energy demand
projections, and potential market risks.
6. Sustainable Practices: Commit to sustainable mining practices to minimize
the environmental impact and demonstrate the company's commitment to
responsible resource extraction.
Conclusion: The proposed coal mining project in Simba, Tanga, poses several
challenges for Colliery Ltd. The company must carefully consider the socio-
political context, environmental concerns, community opposition, regulatory
requirements, and security risks before making a decision. By prioritizing
stakeholder engagement, responsible resource extraction, and sustainable
practices, the company can build trust and potentially contribute positively to the
development of Simba while minimizing adverse impacts on the environment and
local communities. Thorough risk assessments and adherence to regulations are
crucial for successful project implementation.

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