Wednesday 9 February 2022

Risk identification and prevention and control measures in project contract management


The risk of the construction contract mainly comes from two major aspects: first, there is a trap in the terms of the contract, and when the contract is executed, the contractor or the owner makes a claim or counterclaim accordingly; the second is the risk brought about by the contract itself, the owner often uses more stringent contract terms to transfer the risk to the contracting party, or the contracting party takes the initiative to propose preferential conditions in order to obtain the right to contract the project, resulting in an imbalance in the risk bearing.

the risks associated with the adoption of fixed-price contracts.

Fixed-price contracts for shorter, simpler projects. the two parties agree in the special clause on the risk range included in the contract price and the calculation method of the risk fee, and the contract price within the agreed risk range will not be adjusted. in this form of contract, the contractor bears most of the risk. owners prefer to use fixed total price contracts because in the process of enforcing the contract, the contractor has fewer opportunities to claim compensation, the risk borne by the owner is relatively small, and the settlement of the project is simple. the first is price risk, such as incorrect quotation calculation, under-reported items, etc. the second is the risk of engineering quantity, because the bidding period is too short, the bidding unit can not specifically calculate the engineering quantity, can only be estimated by experience, which is the bidding unit will be in a dilemma. whether it is high or low, you will bear the corresponding risks and losses.

Risks arising from unclear standards of contractual terms.

The complexity of the engineering contract is determined by the simplicity, production and technical complexity of the engineering project. there are many standards and details involved in the contract, such as the quality of the project, if there is no clear and specific interpretation of the "agreed standard" in the special clause or lack of operability, the contractor can easily cause the rework loss of demolition and reconstruction, and conversely, the construction party may also cause permanent quality problems, causing hidden dangers to future production and operation.

Risks of inconsistencies in contract terms.

Whether it is bidding in the early stage of the project, changes in the intermediate process, or negotiation of the project, the written agreements and documents in these aspects have the highest validity in the contract documents, and the signing is higher than the signing before. if, throughout the execution of the construction contract, there are inconsistencies in the signing of documents and clauses that are not favorable to one's own side, additional losses will be incurred.

The risk of design changes during engineering operations.

In the course of engineering operations, due to the complexity of the process and technology of the engineering project, changes in workload and other aspects are often involved. these changes must be agreed to in writing by the engineer, otherwise, the contractor will make unauthorized changes, even if reasonable, it will compensate for the losses, and the delay in the construction period will more likely lead to counterclaims by the owner.

Risks in the agreement on the payment of works.

The payment of the project price can be divided into four stages: the project advance payment, the project progress payment, the final settlement payment and the retention fee. in the process of contract implementation, the payment of the progress payment of the project is the focus of the contradiction between the two parties, and the arrears of the progress payment or the early payment will bring certain risks to both parties. if such clauses are not clear, economic disputes and difficulties will be caused to the implementation of future contracts.

The risk prevention and measures in the governance of project contracts

the purpose of risk analysis in contract governance is to avoid risks, reduce the investment risk of enterprises, and reduce risk losses. in the process of contract execution, according to the analysis of the possible risks, measures can be formulated to carry out targeted prevention.

do a good job in bidding before signing the contract, and improve the special terms. at present, the state has implemented the meter of quantities, and the new pricing model gives enterprises a stage to exert their own business governance capabilities, and also makes them bear certain competitive risks. the risks in the list pricing model are: the list has the risk of missing items; there is a risk that the characteristics of the list items are described incompletely or inaccurately; the determination of the "comprehensive unit price" must take into account the actual situation of the project.

It can be seen that if an enterprise wants to reduce the potential risk of investment in the list pricing model, it must analyze the problems that may be encountered during the performance of the construction contract under this mode and carefully study it, infiltrate the "construction project bill of quantities pricing specification" into the process of determining the contract terms, improve the special clauses, and increase the binding force of the contract.

take advantage of special terms to avoid risks when settling projects. in the process of contract execution, we often encounter the following problems, affecting the settlement of the project.

1) changes in the amount of work. design changes will directly affect the increase or decrease of the number of projects, change the content of the project, evolve a new list of items, and cause changes in the contract price.

2) changes in billing base. the change in the quantity of the sub-project quantity causes the measure fee to change due to the change in the calculation base. because the number of engineering entities is directly related to the cost of project measures. changes in the quantity of sub-project quantities and changes in measure fees will also lead to changes in fees and taxes.

3) changes in material prices. during the performance of the project contract, the price of the materials purchased by the bidder changes, or the price of the materials in the bidder's quotation changes, or the price of the cloth of the project cost management department is adjusted. the occurrence of these circumstances will cause changes in the contract price, analyze the possibility of these changes, formulate corresponding measures and solutions, use the signing of the contract, include special clauses, and stipulate the scope and extent of the change of the "contract price and adjustment" and the specific method of adjustment, so as to avoid the risk of loss at the time of settlement.


The claim originated from the contract and ended with the contract. it is important to build a sense of claims among project governance personnel. in the risky investment market, claims are a way for enterprises to protect their own interests, which is a normal and common contract governance business between the owner, the supervising engineer and the contractor, and a legitimate claim based on law and contract.

Evidence of the claim: the first is the contract, the second is documentary evidence, and the third is the relationship between the parties. contractual conditions are of greater importance to claims, and if they are not expressly provided for in advance, they are dealt with as appropriate, which may result in a loss of duration for the enterprise.

Timeliness of claims. a claim for any event should be made against the other party at the time of the event of the claim and not after the claim. fidic contracts, which are now commonly used internationally, have specific time frames for the limitation periods for many claims. for example, for a claim for duration, the claimant should submit a written claim to the other party or its representative within 28 days, failing which the other party is entitled to reject the claim.

Reasonableness of the claims procedure.

When a claim occurs, the parties must submit a written claim to the supervising engineer within 28 days, and when the claim is approved, submit a formal claim report, accompanied by claim information and specific claim calculation form.

Completeness of claims information. only when economic losses or delays in construction periods have actually occurred can one party file a claim against the other party. in order for a claim to be approved, the claim must be accompanied by conclusive evidence. therefore, engineering governance personnel must pay attention to the accumulation, aggregation, classification and storage of original data, so as to provide complete information when the claim occurs.

Measures and methods to strengthen corporate contract governance

All walks of life in US have been market-oriented, competition is more intense, the profits included in the competitive price of projects are gradually reduced, and contract risks are increasing. the more fierce the market competition, the more attention must be paid to contracts and contract governance in order to reduce the investment risk of enterprises.

1) establish a contract governance system for enterprises. as a construction unit, it is necessary to establish a special governance agency for contracts and implement systematic governance of contracts, which is equivalent to the three general offices of enterprises. each engineering project department should also set up full-time contract governance personnel, which are subordinate to the special governance agency of enterprise contracts, and divide the contract governance system into two levels, namely the company level and the project level.

2) the formulation of the contract governance system of the enterprise has a special contract governance system, and the enterprise must also establish a perfect and feasible contract system. including the contract review and approval system, the contract use registration system, the contract statistical examination system, and the contract information governance system. using scientific methods, using statistics to feedback the negotiation success rate of the contract, the actual performance of the contract, etc., through these data to provide a reliable basis for enterprise decision-making to reduce investment risks.

3) do a good job in the governance of the contract signing time to lay a good foundation for the performance of the contract. engineering projects have the characteristics of large investment, long construction period, complex institutions, large environmental impacts, and many unforeseen factors. this requires that when signing the project contract, the content is complete and the terms are clear and strict. the three elements of the contract are the construction period, quality and price, and when formulating these three target values, we must consider the feasibility of the performance ability of the enterprise after the contract is signed, and reduce the risk coefficient of contract performance.


To achieve standardized, institutionalized and standardized contract governance, we must take the contract as the main line and implement the all-round governance of the whole process with the contract as the core. when signing a contract, each clause should be written with the future operability and whether there are extraordinary circumstances; the parties to the contract (party a and party b) must conduct a comprehensive review of whether the contract documents are complete, whether the content is comprehensive, fair and reasonable, whether the terms are complete, clear and accurate, and whether the risks are reasonably shared. analyze and evaluate the legal consequences and implied risks of the implementation of each contract clause, and take targeted protective measures. in the process of contract performance, it is necessary to strictly follow the provisions of the contract and regularly check the implementation of the contract to avoid the risks brought by poor contract governance to the enterprise.

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