The contract management function is gaining ground in many fields, including construction and civil engineering. This article has kindly been made available to the readers of this blog by Carlos Álvarez Frade. It makes reference to the Spanish situation but is easily transposable to the worldwide trend.
I’ll start with the conclusion: don’t mind the title! There was a time when contracts were signed on paper napkins. There are still echoes of phrases like: “Contracts are there to be kept in the drawer.” “This problem can be solved with a good meal”…
The truth is that, nowadays, nothing is further away from reality. Follow those echoes and you are predestined to some unpleasant surprises. In an increasingly globalized world, internationalization is no longer just a survival solution for some companies. It has become a real business opportunity.
Recent evolution for the contract management function
In recent years, relations between companies have changed from being based on commercial relations to being governed by a contract. The latter creates a framework in which the rules of the game are described. The connections governing the relationship between the parties are becoming increasingly complex. The contract itself has gone from being a mere formality to an instrument with the objective to influence the results of a project. This requires rigor both in establishing and negotiating the contract and in its monitoring and implementation.
This requirement has brought to life the contract management function. Its degree of development, content and implementation depends on both the country, the company and the sector in which we are located.
The contract management function in regions and business sectors
The contract management function has a strong tradition in the Anglo-Saxon world. In Spanish-speaking countries, it may still be with an incipient maturity. However, I can testify that it is growing at a dizzying rate in, for example in Peru and Chile.
In Spain, many sectors have seen an evolution in this direction. This applies to construction, aerospace or pharmaceuticals, to name a few.
For construction, the change has begun earlier in areas such as industrial civil works and more specifically in the energy and railway sectors. There, relations between the parties are more complex due to:
- the nature of the projects,
- their duration,
- internationalization and worldwide supply chain, and
- the number of parties involved.
We are talking about sectors where the parties are used to negotiate the terms of contracts, to agree on their rights and obligations, and demand performance from each other for their mutual benefit.
The example of the contract management function pushed by new legislation in Spain
However, the evolution has not been limited to these sectors within the construction business in Spain. It has also extended to civil works (roads, tunnels and other infrastructures). I can say that it has intensified at the national level. This is due to the boost that the public sector has given to the contract management function.
It already appeared in Spanish legislation in Law 30/2007, on Public Sector Contracts, as an option for the contracting body in order to strengthen the control and management of compliance. Now, through Law 9/2017 (8 November) on Public Sector Contracts (LCSP), this it is no longer optional. The contracting entities are obliged to appoint a person responsible for the contract management function. Consequently, the contractors should adapt to the rules of the game and develop and/or subcontract this contract management function. They need to manage the inherent commercial and contractual events.
The trend is clear
In residential construction, the change is taking place right now. The crisis in the sector marked a period in which there was no room for negotiation of the terms. Now, the parties start to negotiate the T&Cs again. Proposals are still being adjusted. But, due to the demands of the national market, contractors are monitoring contracts in much greater detail. Their objective is to enforce those agreements in their favor. This includes preparing – with the right formalism and within the time limits – claims, addenda and change orders as foreseen in the contract.
The trend is clear! The contract management function must be an integral part of the project implementation to ensure the success of the project.
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