Article #142 How Can Technology Reduce the Risk of Fraud and Corruption in Contract Implementation on Capital Projects?

On capital projects, contract administration is the management of contracts made with project management consultants, design and supervision consultants, contractors, or suppliers to assure that all parties comply with and fulfill the terms and conditions of the contract. It includes all dealings between parties to a contract from the time a contract is awarded until the scope of work has been completed and accepted or the contract terminated, payment has been made, disputes have been resolved and the contract closed.

Contracts can be considered as sub-projects as each contract has a unique goal, consumes resources, has a beginning and end date, and requires coordination and planning of relevant activities, as well as documentation in a contract file throughout the process. The main objectives of Contract Administration are the successful execution of the contract in a timely and economic manner and to ensure performance by all parties by the requirements of the contract.

Using a Project Management Information System (PMIS) like PMWeb, capital project owners can improve the implementation of contract administration best practices to reduce the risk of fraud and corruption when it comes to contract implementation. Using a PMIS like PMWeb will help in avoiding the risks of hiding cost over-runs, time over-runs, and making actual progress of works impossible to determine. Further, a PMIS will also help in eliminating the risks of poor filing and record-keeping, missing invoices, timesheets, logs, deliverables, supporting documents, among others. In addition, a PMIS will help to enforce accountability for actions needed for contract administration.

Document Management

The successful administration of any contract requires having the proper document management system to file and keep records of all project documents. Unlike generic document management systems, the PMWeb document management repository is specifically designed for capital projects where a filing room will always exist to store and archive documents produced during the project life cycle phases. Those filing rooms will usually include cabinets to store and lock those documents to limit and control access to those documents to only those authorized to access. PMWeb document management repository allows creating folders and sub-folders to exactly match those cabinets and the folders within those cabinets, assign access authority levels for each folder, and define the attributes to be added to each document stored in each folder. PMWeb also allows attaching relevant documents.

In addition, PMWeb provides the option for the project team members to subscribe to notifications when new documents are uploaded, when existing documents are downloaded, a newer document version is uploaded, or when a document is deleted among others. Of course, those who have access to those folders, can view the documents within each folder online and add their markup and comments.

Formalizing Lines of Communicates Needed in Contract Administration

One of the key requirements for successful contract administration is to establish accountability for the authorized communication channels when it comes to initiating, reviewing, and approving each contract administration process. The review and approval authority levels could depend on several attributes such as if the process could result in a change to the contract agreement, assigned category or type code value, the value of the transaction among others. PMWeb Workflow module will be used to create the workflow steps for each contract administration process as well as establish the conditions to map the set review and approval authority levels for each process type.

Single Platform to Administer All Contracts

PMWeb commitment module will be used to capture all types of contracts that could exist when it comes to delivering capital projects including lump sum, unit rate (Admeasurement or Re-measurement), and cost-reimbursable plus a fee. PMWeb is also used to manage contracts for different project delivery methods including the traditional design-bid-build, fast-track, engineering-procurement-construction (EPC), design-build, labor and material, turnkey, target cost, and all types of public-private partnership (PPP) models. In addition, it supports all forms of contracts including FIDIC, NEC among others.

Contract Modifications and Change Management

PMWeb Potential Change Order (PCO) module provides a proactive process for forcing all contract entities to submit details of all events that they believe could result in a contract change. The submission of a PCO will enforce the submitting entity to provide all supportive documents and records that made them believe that they will be entitled to a change. A potential change order could be rejected by the project owner or approved for which a change order will be generated.

PMWeb Change Order module will be used to manage directive change orders issued by the project owner as well as those change orders that were generated from approved potential change orders. The change order form will capture the details of the cost adjustment and time extension associated with the change. Similar to all other PMWeb modules, all supportive documents will be attached to the change order as well as links to other relevant PMWeb records and imported MS Outlook emails. In addition, a workflow will be assigned to the change order to ensure the intended review and approval process.

Interim Payments

PMWeb Progress Invoice module will be used to capture the details of all interim payments for completed and approved work in place associated with each contract. The percent complete can be based on either quantities of completed, an estimate of percent complete of completed works, or the relevant project schedule activity percent complete. The progress invoice module will automatically calculate the retention for work in place and material stored on site. For approved interim payments, PMWeb also allows capturing the actual payment made against invoices such as the amount paid, payment transfer details among others.

In addition, PMWeb Miscellaneous Invoices and Timesheet modules will be used to capture other actual cost expenses that are not related to a specific contract. Similar to all other PMWeb modules, all supportive documents will be attached to progress invoices, miscellaneous invoices, and timesheets as well as links to other relevant PMWeb records and imported MS Outlook emails. In addition, a workflow will be assigned to each one of those three forms to ensure the intended review and approval process.

Cost Control

The data captured in the commitments, potential change orders either pending approval or approved, change orders either pending approval or approved, progress invoices, miscellaneous invoices, and timesheet will be automatically captured and saved in the PMWeb cost ledger so they will become available to be reported on.

PMWeb Cost Worksheet module provides the contract administration team with a single spreadsheet to present the project cost information. There are no limits to the number of cost worksheet layouts that can be created as some could be to only present approved records, pending records, or approved and pending records. In addition, new fields can be created to calculate different measures needed for cost control reporting. The PMWeb cost worksheet can be saved as an MS Excel file should the contract administration team wants to run their analysis without adjusting the originally captured data.

Monitoring and Evaluating Contract Performance and Reporting

Similarly, the data captured in those contract administration modules will become available to be reported on in any desired format to provide the organization with a real-time single version of the truth for monitoring, evaluating, and reporting contract performance. The reporting can be limited to a single contract, contracts within a project, contracts within a program, or contracts across the complete projects’ portfolio that the capital project owner has. The report will display the different performance metrics needed to provide an unbiased evaluation of the contract or contract’s performance.

Claims and Disputes Resolution

PMWeb will be used to support the claims and disputes resolution requirement. PMWeb custom form builder will be used to create the claim submission form which will have the fields to capture the claim cause and effect, details of the contractor’s entitlement for additional time and/or money, FIDIC contract clause that the contractors have based on the entitlement on, checkboxes if the claim is considered to be for works that are out of the project scope of work, if it has cost impact and if it has schedule impact along with the project schedule activity that will be the first to be impacted by the submitted claim.

The form will also have a field to capture the proposed counterclaim response. In addition, the form will have a table to capture the different time extensions and financial compensation proposed to settle the claim. For each proposal, there will be an ID, when it was proposed, a brief description of the proposal, proposed time extension and adjusted project completion date, financial compensation, and status of the proposal whether it was approved or rejected.

The form attachment tab will be used to attach the project documents and records that are related to each claim topic and the counterclaim response. Those documents will be uploaded and stored on the PMWeb document management repository. In addition, links to relevant PMWeb records and imported MS Outlook emails will be also included in the attachment tab. As there could be different members in the project owner’s claim management team that could be located at different locations who have different responsibilities in the counterclaim response, the workflow module will be used to map the steps for submitting the claimed topic, prepare the entitlement recommendation and the final response. The workflow could include branches to align the workflow with the set authority approval levels. The workflow will also identify who has the authority for approving the final counterclaim response.

The information captured in the Construction Claim Form will become available for the claim management team to present in any desired form and format. The report could identify the reasons for those claims, which claims were due to additional scope of work, which claims have time and cost impact, claim cause and effect statement, claim entitlement and proposed counterclaim response, which activity does the claim impact, the amount claimed by the contractor and the amount assessed by the counterclaim among many others.

Other Contract Administration Processes

In addition to those listed processes, many other contract administration processes need to be performed during the post-contract phase. Although some of those processes will be performed by different project team members, nevertheless the contract administration team needs to be made aware of those processes and might need to receive periodical reports on them.

Those processes include the processes of issuing a letter of acceptance and letter of award, holding the kick-off meeting, managing the process of giving access and possession of construction site, verification of bonds, sureties, and insurance policies, advance payment and advance payment recovery, review of extension of time requests and contract duration extension, risk management, issues management, substantial completion certificate, suspension of works and termination of the contract, issuance of taking over the certificate, managing defect liability period, final account, discharge and contract closeout, contractor performance evaluation and appraisal, post-implementation review and capturing lessons learned.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with more than 35-year service record providing project management and controls services to over 100 projects with a total value over the US $5 Billion. Those projects included Commercial, Residential, Education, and Healthcare Buildings and Infrastructure, Entertainment and Shopping Malls, Oil and Gas Plants and Refineries, Telecommunication, and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training, and business development.

Bassam is a frequent speaker on topics relating to Project Management, Strategic Project Management, and Project Management Personal Skills. Over the past 35 years, he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe, and South America. He has written more than 250 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP), and Earned Value Professional (EVP) from the American Association of Cost Engineers (AACE) and Green Project Management (GPM).

Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA, and London Business School, London, UK.


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