Project contracting

Dr., Rabab Sobhi

 Purposes of Contracts
The purposes of contracts are to define obligations and expectations, limit or
define potential liabilities, lay out payment terms, determine who bears
business risks, and clarify roles and responsibilities. From the buyer’s
standpoint, the contract ensures that the product/service is provided as
expected, and from the seller’s standpoint, the contract ensures payment and
successful contract closure.
 Pre-contracting
Before a company (the buyer) gets into a contract engagement, there is a lot
of pre-work that needs to be done, such as Request for Proposal (RFP),
Information for Bid (IFB) and Request for Quote (RFQ). For every step taken
during the contract initiation and management process, we must make sure
that company/organizational policies are followed and adhered to. Vendor
management (vendor selection processes and procedures) includes common
organizational policies related to contract management, vendor management,
company information system and security management (including security
standards and procedures).
 Pre-contracting
For every step taken during the contract initiation and management process,
we must make sure that company/organizational policies are followed and
adhered to. Vendor management (vendor selection processes and
procedures) includes common organizational policies related to contract
management, vendor management, company information system and
security management (including security standards and procedures).
Definition of Best Value Procurement (BVP):
Best Value Procurement is a procurement method that focuses
on selecting suppliers or contractors based not solely on price
but on a range of factors that collectively represent the best
value for the project. It emphasizes the overall benefit that a
supplier offers by considering elements like performance,
quality, reliability, and long-term value. In other words, it's a
comprehensive approach that looks beyond initial costs to
ensure that the chosen contractor delivers sustainable results
and aligns with the overall project goals.
Importance of Best Value Procurement in
Project Contracting
1.Holistic Decision-Making: BVP enables contracting managers to make decisions that
take into account the broader impact of their choices. Instead of focusing solely on
the lowest bid, which could compromise quality or long-term success, BVP assesses
factors like lifecycle costs, technical capabilities, innovation, and the contractor's track
record of performance. This leads to a more well-rounded and effective project
outcome.
2.Enhanced Quality and Innovation: By focusing on quality and performance metrics,
BVP encourages contractors to present innovative solutions. Contractors are
incentivized to demonstrate their unique strengths, which might add value to the
project beyond what the traditional lowest-price procurement approach would yield.
This results in higher-quality deliverables and potential improvements in project
efficiency.
Importance of Best Value Procurement in
Project Contracting
1.Holistic Decision-Making: BVP enables contracting managers to make decisions that take into
account the broader Risk Mitigation: BVP inherently reduces risks associated with poor
project performance or contractor non-compliance. Because the selection process assesses
factors like past performance, risk management capabilities, and contractor experience, it
minimizes the likelihood of selecting a contractor who may be underprepared or unable to
handle complex project demands.
2.Long-Term Value: In project contracting, achieving long-term success and value is crucial.
While traditional procurement might focus on the upfront price, BVP considers lifecycle costs
and long-term sustainability. This ensures that the chosen contractor delivers not only during
the project but also through the maintenance and operation phases, ultimately saving costs
over the project's full life.
3.Better Stakeholder Alignment: BVP creates a framework for aligning the project goals of all
stakeholders. By selecting a contractor based on a wider range of criteria, contracting
managers can ensure that project objectives (quality, time, cost-efficiency) are aligned with
the contractor’s abilities and approach, leading to better outcomes and fewer conflicts down
the line.
 Types of Project Contracts
▪ Client Risk Exposure: This vertical axis indicates the extent to which risk is either retained by the client or
transferred to another party. The higher on the axis, the more the risk is transferred.
▪ Operational Cost Risk Exposure: The horizontal axis shows how operational cost risks are handled, from
being retained by the client to being fully transferred to another party.
▪ Different Procurement Models:
• Traditional Full Design: Traditional method where the design is completely handled before
construction begins, with risks largely retained by the client.
• Design and Build: In this model, one entity performs both design and construction, increasing the
transfer of risk away from the client.
• Construction Management: This approach involves managing the construction process without
transferring much of the risk associated with capital costs but may involve some operational risks.
 Types of Project Contracts
• Public-Private Partnerships (PPP): These setups typically involve long-term contracts
where private parties handle large aspects of both construction and operation,
further transferring risk.
• Design, Build & Operate: This is a more integrated approach where design, funding,
building, and operation are all handled by one entity, transferring significant capital
and operational cost risk away from the client.
• Private Finance Initiative (PFI): A type of PPP where private parties design, build,
finance, and operate public projects over a long-term agreement, representing the
highest risk transfer from the client.
 Fully
transferred Risk
Types of Project Contracts
Transferred

EPC+F
Financing
initiative

Client Capital Cost Risk BOT

Design
PPP
Build (D&B)

Full Design

Construction
Management

Risk Fully
Fully risk Risk hold
retained by client Client Operational Cost Risk Transferred transferred
 FIDIC contracts

The construction and engineering industries globally rely on standardized forms of contracts to
manage the relationship between parties involved in projects. Among these, FIDIC, ICE, and
RICS contracts are some of the most prominent. Here’s an overview of each and the differences
between them:
1. FIDIC (Fédération Internationale Des Ingénieurs-Conseils)
•FIDIC is an international federation of consulting engineers founded in 1913, and its contracts
are among the most widely used contractual suites worldwide, especially for international
construction projects.
• Standardization: Offers a range of standard contract templates that cover various types of
construction and engineering works, including civil construction, plant and design-build,
and EPC/Turnkey projects.
• Risk Allocation: Clearly defines the roles and responsibilities of all parties and typically
balances risk allocation between the contractor and the employer.
• Dispute Resolution: Includes mechanisms for resolving disputes through mediation,
arbitration, or litigation, emphasizing dispute avoidance and early resolution.
 Institution of Civil Engineers
ICE contracts

ICE (Institution of Civil Engineers)

•Originally developed by the British Institution of Civil Engineers, the ICE contracts were
designed to standardize the contractual provisions in civil engineering sectors, mainly in
the UK but also used elsewhere.
• Detail Oriented: Focuses on civil engineering specifics and provides comprehensive
provisions for managing technical details.
• Management Roles: Typically delineates the role of an engineer or project manager
with significant responsibilities and powers.
• ICE Conditions of Contract: Traditional form, although less commonly used now with
the rise of newer forms like NEC (New Engineering Contract), which has replaced ICE
in many respects.
REQUIREMENTS FOR
CONTRACTS
Dr., Rabab Sobhi
 Introduction
According to the oxford dictionary; a contract is a written
or spoken agreement, especially one concerning
employment, sales, or tenancy that is intended to be
enforceable by law.
 Introduction
Contract life cycle management “is the process of systematically and efficiently
managing contract creation, execution and analysis for maximizing operational and
financial performance and minimizing risk”. Contract management is based on the
following service modules and can be individually supplemented: commencement of
contract negotiations, contract drafting, contract negotiations and contract
implementation. Within the framework of the commencement of contract
negotiations the essential information for the contract will be structured, analyzed
and appraised, taking into account the suitable choice of business operating mode.
We specify the necessary services and participate in the selection of your potential
contractual partner.
 Introduction
A construction contract is a legally binding set of documents typically between a
contractor who is taking on the work and the owner who is requiring the work.
Contracts in construction are comprehensive covering everything including cost and
payment terms, schedule, scope, specific tasks to be performed, and any other
contract terms required by one of the two parties. The contract also notes how any
disputes should be handled.
 WHAT ARE THE BASIC REQUIREMENTS FOR
MAKING A VALID CONTRACT?
A valid contract normally contains the following six basic elements.
1- Intention to create legal relations :
It's commonly understood that for a business transaction to create a legally enforceable
agreement, the parties involved must intend to do so. In practical terms, this means that if
you sign a contract related to business matters, you have the right to take legal action
against the other party if they fail to meet their obligations, and they can do the same to
you.
This presumption can be set aside if the parties explicitly indicate they do not intend to
create a legally binding contract. For instance, the phrase "subject to contract" often
appears on documents to signify that the document itself is not a contract. Instead, its
contents will only become binding once a subsequent contract is signed by all parties. A
party acting "subject to contract" retains the right to withdraw from negotiations at any
point before the final contract is agreed upon.
In any dispute, the burden of proving that the parties intended to create a legally binding
contract falls upon the party seeking to enforce the contract.
WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?

Offer
It's worth noting that silence does not constitute acceptance by the offeror. For
instance, an offeror cannot assume acceptance if no response is received within a
specified timeframe, such as saying, "If I don't hear from you within 10 days, I'll
consider your acceptance and expect payment."
Additionally, it's important to distinguish between an "invitation to treat" and an offer
itself. An invitation to treat merely invites others to make offers but does not
constitute an offer. Examples include invitations to tender, displaying goods in a shop,
and advertisements of goods or services in media like newspapers or television,
unless explicitly stated otherwise in the advertisement.
 WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?
Acceptance
A contract is established only when the offer is accepted by the recipient of the offer, often referred to
as "the offeree." Acceptance typically occurs verbally or in writing. However, if the contract permits
simultaneous acceptance and performance of duties, acceptance can also be demonstrated through
actions. For instance, upon receiving your payment, a supplier may promptly deliver goods without
explicitly confirming.
It is advisable for both parties in a contract to clearly agree on and specify the method of acceptance. If
the offeror fails to specify, certain rules may apply:
Under the Postal Rule, if it is reasonable to use mail for offer and acceptance, the contract is formed
when the acceptance letter is posted, even if it gets lost in transit.
According to the Receipt Rule, oral acceptance forms the contract upon the offeror's receipt of
acceptance. Similarly, acceptance by fax or email is valid upon receipt, regardless of whether the offeror
reads it immediately.
Another important consideration is that a conditional or partial acceptance constitutes a counter-offer
and does not establish a valid contract. If the offeree accepts only some terms or proposes new ones,
they are effectively making a new offer. In business transactions, there may be a sequence of counter-
offers before a final acceptance is reached.
 WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?
Consideration (benefit given to the other party)
In contract law, consideration refers to something of value given by one party in exchange for a
promise or benefit received by the other party. This could involve a sacrifice made by the
promisor or a gain received by the promisee, both having economic value. Examples of
consideration include money, goods, or services exchanged. It's important to note that
consideration doesn't need to be of equal value. For instance, if a seller agrees to sell goods at
a price below market value, they cannot later claim the price difference in court.
However, promises made as gifts are not legally enforceable because they lack the mutual
exchange of consideration — the recipient does not provide anything in return. An exception
to this rule exists when contracts are formalized as "deeds," where consideration is not
necessarily required from the recipient.
 WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?
Consideration (benefit given to the other party)
In contract law, consideration refers to something of value given by one party in exchange for a
law, consideration refers to something of value given by one party in exchange for a promise or
benefit received by the other party. This could involve a sacrifice made by the promisor or a
gain received by the promisee, both having economic value. Examples of consideration include
money, goods, or services exchanged. It's important to note that consideration doesn't need to
be of equal value. For instance, if a seller agrees to sell goods at a price below market value,
they cannot later claim the price difference in court.
However, promises made as gifts are not legally enforceable because they lack the mutual
exchange of consideration — the recipient does not provide anything in return. An exception
to this rule exists when contracts are formalized as "deeds," where consideration is not
necessarily required from the recipient.
 WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?

Capacity (the authority or ability to make contracts) In public contracts, the responsibility for
assessing the authority of a public official to enter into a contract and bind their agency falls
squarely on the party making the offer. Unlike private contracts where there may be implied
authority, in public contracts, statutes explicitly assign the risk to the offeror. This means they
must ensure that the official requesting the offer has the legal capacity to commit their agency
to the contract's terms and obligations.
Imagine a construction company bidding for a public project to build a new bridge. Before
submitting their bid, the company must verify that the government official soliciting bids has
the authority to award contracts on behalf of the city or state. This involves checking if the
official's position grants them the power to legally bind the government to the terms specified
in the construction contract. If the company fails to confirm this and the official lacks the
required authority, any contract awarded based on their bid could be legally invalid or
unenforceable. Thus, in public contracts, ensuring the authority of the contracting party is a
critical step to avoid potential legal disputes.
WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?

Certainty
Contracting parties must ensure that their agreement is complete, i.e. not lacking in
some essential terms and it is not uncertain, for example, vague or ambiguous. An
agreement may be unenforceable if it is incomplete or uncertain.
WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?

Lawful object: For the formation of a valid contract, it is also necessary that the
parties to an agreement must agree for a lawful object. The object must not be fraud
or illegal or immoral or must not imply injury to the person or property of other.
WHAT ARE THE BASIC REQUIREMENTS FOR MAKING A VALID
CONTRACT?

Privity of contract :
Under common law, a third party cannot sue or be sued regarding a contract, and only
the parties to a contract can rely on the contract terms to take legal action. However,
there are some exceptions to this principle, such as:
•If the contract is signed by an agent or representative on behalf of one of the parties,
then that agent (who is a third party) may also bear the liability if he or she acted
fraudulently or signed the contract without authorisation.
•It is common in insurance contracts to subrogate the insured person's rights to the
insurance company. For example, if someone injures you and the insurance company
subsequently pays your claim for the injury, then that insurance company (as a third
party) can take over your legal rights to claim against the wrongdoer.
 The distinctive standard for the administrative contract
1. Public Interest
Administrative contracts must serve the public interest. They are designed to fulfil public
needs or provide public services, distinguishing them from private contracts focused on
personal or commercial interests.
2. Involvement of a Public Authority
One party in the administrative contract must be a public authority (such as a government
department, municipality, or public agency). This ensures that the contract is tied to the
state's administrative function.
3. Administrative Clauses
These contracts include special administrative clauses that grant the public authority certain
privileges and powers not available in private contracts. Examples include the power to
unilaterally modify contract terms or terminate the contract for public interest reasons.
The distinctive standard for the
administrative contract
4. Subject to Administrative Law
Administrative contracts are governed by public administrative law rather than private civil
law. This means disputes are typically handled in administrative courts, which apply public
law principles.
5. Exorbitant Clauses
Administrative contracts often contain exorbitant clauses that are more stringent than those
found in private contracts. These might include penalties for non-compliance or specific
performance obligations that are enforceable by the administrative body.
6. Supervision and Control
Public authorities have the right to supervise and control the execution of administrative
contracts to ensure compliance with public policy and service standards. This includes the
right to inspect, audit, and demand performance reports.
Assignment Two
•Power of Attorney must be obtainable in both parties; Give Examples in bidding procedures &
contracting.
•How the Egyptian Law mention or organized agent or representative relation to the contract
•What is the No., of the Egyptian Law that organize the BOT projects ?
•What is the Ministry and unit responsible for PPP projects in Egypt ?
•What are the different types of PPP projects ?
•Define the click contracts ?
•Liquidated Damages and Penalty Clauses, What is the difference between both

N.B : Assignment has to be done individually