Contract Management and Everything You Need to Know About It

If you intend to build a structure or even renovate and reconstruct a building but lack the necessary knowledge and expertise or have time constraints to be present and monitor the project, you can use contract management. Contract management can turn you into an investor and exempt you from all executive and supervisory stages. Follow us to get familiar with this agreement step by step by the end of this article.

What You Will Read in This Article:

• The Concept of Contract Management
• Description of Duties in Contract Management
• Advantages of Contract Management
• Cost of Contract Management
• Types of Contract Management Contracts
• Sample Contract Management Contract
• Contracting in Dano Architecture and Design Company

The Concept of Contract Management

In constructing any type of building, whether it’s a small shop or a skyscraper, the client has many responsibilities. Administrative affairs, purchasing equipment and supplies, hiring personnel, civil responsibilities, executive affairs, performance monitoring, and more—these are just a small part of the client’s responsibilities. Any disruption in any of these matters can have countless consequences, especially if the client lacks the necessary expertise in this field. In such circumstances, the client can use contract management. This means that the client can enter into a contract with individuals or legal entities and delegate all project-related affairs and responsibilities to that person. These individuals are well aware of all the ins and outs of project execution and relieve the client of all the burdens, and the client only plays the role of an investor.

Contract management contracts, if concluded with the right individuals, have numerous and highly beneficial advantages.

• Utilization of the project manager’s resources and relationships
• Reduction of errors due to lack of knowledge and awareness
• Acceleration of executive affairs and project completion on time
• Cost savings
• Continuous supervision and quality control
• Rapid support for all affairs
• Lack of civil liability for the client
• And more

One of the biggest advantages of a contract management agreement, which is less commonly mentioned, is that the client can comfortably focus on investment activities regarding the project’s financial aspects.

The cost that the client or investor pays for this contract is very cost-effective and has a significant economic justification. Usually, in Iran, after examining the financial costs of the project, an amount equivalent to 10% to 20% of the total project cost is allocated to contract management. However, it is worth mentioning that there are factors that affect the contract price to have an impact.

In some projects, the client personally takes on the responsibility of purchasing equipment and materials, which makes the cost of the contract management contract more effective in reducing costs.

Some projects are located outside the city and sometimes have special routes or bypasses, making access and travel to the site challenging. This issue affects the price of this contract.

In the field of construction, the qualifications and experience of a project manager can greatly impact the success of a project. Project managers play a crucial role in overseeing and coordinating all aspects of a project, ensuring it is completed on time, within budget, and meets the desired quality standards. Here are some considerations regarding a project manager’s education level and human resources:

1. Education and Experience: Project managers with higher levels of education, such as a bachelor’s or master’s degree in construction management, engineering, or a related field, often bring a deeper understanding of project management principles and technical knowledge. However, practical experience is also highly valuable. Many successful project managers have a combination of education and years of hands-on experience in the construction industry.
2. Certifications: Some project managers pursue industry-recognized certifications like the Project Management Professional (PMP) or Certified Construction Manager (CCM) designation. These certifications demonstrate a commitment to professional development and can enhance a project manager’s qualifications.
3. Team Composition: Building a competent project team is essential for project success. While experienced and well-educated project managers are important, having skilled and knowledgeable team members in various roles, such as architects, engineers, contractors, and subcontractors, is equally critical. The synergy of a well-rounded team can lead to better project outcomes.
4. Budget Considerations: Hiring highly experienced and educated project managers may come at a higher cost. However, their expertise can often lead to cost savings in the long run by reducing errors, optimizing resource allocation, and ensuring efficient project execution.
5. Project Size: The size and complexity of the project may influence the qualifications required for a project manager. Larger, more complex projects may demand project managers with extensive experience and education due to the increased challenges they present.
6. Time Constraints: Projects that need to be completed on tight schedules may benefit from project managers with a proven track record of delivering projects quickly and efficiently. Experienced project managers are often better equipped to handle time-sensitive projects.
7. Project Type: Different types of projects, such as commercial, residential, industrial, or infrastructure, may require specialized knowledge. Project managers with experience in a specific project type can provide valuable insights and expertise.

In summary, the education level and human resources of a project manager and their team are essential considerations in construction projects. The right combination of education, experience, certifications, and team composition can significantly impact the project’s success. Ultimately, the choice of a project manager should align with the project’s size, complexity, budget, and goals to achieve the best results.

The issue of time is effective from two dimensions. One is the implementation date and the other is the duration of the project. If you need to do your project in an inappropriate season, you will definitely face an increase in cost. In the cold season, when there is a high probability of rain, many events will happen to increase the price. Also, if you need to complete your project in a shorter period of time, accelerating factors will increase the cost.

Usually, in the contracts of large projects, a lower percentage is requested due to the higher profit margin they bring. Because the competition in this project is very heavy. But in small projects, due to the fact that many works are done by check and not based on the size, a higher percentage is requested

There are different types of contract management contracts, which include:

Management contract

In this type of contract, all operational responsibility will be on the project manager. Also, this type of contract has the most demand among other contracts.

Trust management agreement

This type of contract is for small projects. In this type of contract, all responsibilities are the responsibility of the employer. The purpose of this type of contract is more optimization and maintenance. Also, this contract is mostly regulated between legal entities.

salary agreement

In this type of contract, the project manager is solely responsible for executive matters, and the project manager has no involvement in the procurement of supplies, equipment, materials, etc.

Design and implementation agreement

This type of contract has no restrictions on the subject of the project. It is mostly used in the design and construction of various construction projects, as well as industrial projects such as oil fields, dam construction, skyscrapers, and power plants. In this contract, the implementation of the project is very important, but what is more important is the design of the project.

Special agreements (Global)

In this type of contract, all matters are raised with the employer in general, and the employer does not interfere in the details of the project and costs.

Management contract with general contractor

This method is usually used in auctions and tenders.

turnkey contract (B.O.T)

The costs in this method will be based on the square meter and the employer will not interfere in the details.

Finance Agreement

Usually, in this method, the costs are paid at the end of the project and from the income of the project itself.

Sample contract management contract

A standard contract regarding contract management includes 9 articles. These materials include:

• Article one- the parties
• Article two – subject of the contract
• Article three – the total amount of the contract
• Article four – Term
• Article five – Obligations of the contractor
• Article Six – Obligations of the employer
• Article seven – Guarantee period
• Article eight- Termination
• Article nine – dispute resolution