Strategy & Leadership

Integrated contracts: challenge for clients and contractors

September 3, 2015

Large integrated long-term contracts give many contractors a headache. TIAS' International Contracting Program teaches participants how to avoid risks and what to do when things go wrong. This involves looking both from the legal and the business perspective.

All kinds of things can go wrong when managing contracts for large infrastructure projects. A large construction company has recently made headlines after it fell victim to the substantial risks it ran in the implementation of complex infrastructure projects, says Arjan van Weele, Academic Director of the International Contracting training program. This company, together with a technology partner, bid far too low for a project and took far too many unmanageable risks upon themselves, including obtaining approximately one thousand permits, which were necessary for the project but were not issued in time. Professional contract and risk management could have prevented this.

"Integrated contracts are used more and more frequently in infrastructure projects," says Van Weele. This means that the contractor does not only execute the project, but designs, manages, and carries out maintenance too. "The contractor is then responsible for such a project for the next 20 to 25 years. Contractors are desperate to secure commissions, so they will say that they can easily carry out such projects. But the practice shows that they cannot. And when it goes wrong, claims follow." This trend has already set in and cannot be reversed, says Van Weele. "Contractors will have to learn to work in these conditions."

Good stakeholder management

That means that certain skills will be required more often from project managers. "Obviously, a project manager must be well informed technically, but this is not the problem. What is also required is the proper execution of stakeholder management. This is necessary to obtain the required permits and to avoid unexpected hindrances from activist groups." Another skill is contract management, says Van Weele. "There is a main contract with the client, but this main contract is usually carried out by many subcontractors and suppliers. It is very important that the contracts with these parties should be in line with the main contract. As a project manager, you must oversee that they deliver what those contracts stipulate."

Compliance with contracts is becoming increasingly important. "You will only get paid when you have fulfilled the contract. Sometimes to the frustration of the contractor. If he delivers fantastic work, but the client still misses some details listed in the contract, he will not get paid."

TIAS has developed the International Contracting training program help managers working on large projects become “contract aware.” The program is intended for project managers, contract managers, project procurement, and contract lawyers.

Core module and two specialist modules

The program consists of a core module of eight sessions and two specialist modules of five sessions. The core module focuses on providing a very wide range of topics in the field of (internationally oriented) legal, organizational, and commercial aspects. The two "specialist" modules discuss in more detail specific issues, such as downstream contracting and financial engineering for projects.

The program is focused on two objectives: how to avoid problems in this type of major international contracts, and what to do when things go wrong? "This is not a legal program," says Van Weele. "But we teach participants how to read the contract, which tools to use to minimize the risks, and how to arrive at a good solution when things go wrong. Companies often resort to legal solutions to disputes, but they are not always the best solutions for the company. Sometimes it is better to look at the problems from a business perspective, even when the company is in the right legally. We train participants to consider both perspectives and to choose what is best for the continuity of the project and the company. We also teach them how to give substance to professional contract management.
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