Contract Life Cycle
Like any other project, contracts also follow a life cycle comprising the following six stages:
1. Requirement
2. Requisition
3. Tender
4. Evaluation
5. Contract Administration
6. Contract Closure
Each of the above listed stages of contract life cycle is detailed below.
Requirement: During this stage, the Scope of Work (SOW) is created. This document addresses specific project requirements, which in turn determine the need for the contract. Contract cost estimates are defined and coded to the project’s Work Breakdown Structure (WBS) and the budget for the contract is identified. The form of contract appropriate to the scope of work is also decided (i.e. lump sum design and construct, consultancy agreement, etc.).
Requisition: This stage involves further detailing of the contract objectives and tender documents are prepared. The evaluation criterion for assessment of tenders is also established during this phase. Certain examples of evaluation criteria are technical capability, overall cost, financial capacity and price.
Tender: During this stage, tender invitations are sent to suppliers/contractors to compete for the contract. This could involve making contact with selected tenderers or advertising an open tender process. The tenderers’ proposals are received as a result of the tender process.
Evaluation: During this stage, the proposals received are evaluated as per the evaluation criterion established during the requisition phase. Significant negotiation and discussions may be required with tenderers to normalize the pricing and conditions to enable a final comparative evaluation. Once a tenderer has been finalized, a contract is signed between the parties. The contract is a legally binding agreement between a contractor and a principal. After signing the contract, it needs to be administered to ensure that the project objectives are achieved.
Contract Administration: The contract administration process involves monitoring the contractor’s performance regularly to ensure that the project objectives are met and the contractual obligations are complied with. Contract administration is a detailed process, and includes activities such as:
* Managing the contract scope, including variation management (try our free variation form);
* Reporting contract progress to all the stakeholders;
* Managing payments to the contractors.
Contract Closure: During this stage the deliverables are formally accepted by the stakeholders, a written notice of acceptance is provided to the contractor and a certificate of completion is issued. In addition, a contractor/consultant review form should be completed to evaluate and record their performance for future work opportunities.
It is imperative to plan and execute each stage of the contract life cycle diligently to ensure that maximum benefits are accrued for the organization.
