Contract and Project Management: Administering Time and Money
Contract and Project Management in Paper 5 tests administration rather than theory: can you run a Hong Kong building contract from tender to final account, control time and money, and resolve disputes without losing the client's position?
Choosing and reading the form
- Traditional lump-sum with bills of quantities (HKIA/HKCA Standard Form of Building Contract, 2005 edition) remains the base case; design and build, management contracting and cost-plus appear where the brief is incomplete at tender.
- Government building works use the Architectural Services Department General Conditions of Contract for Building Works. Identify the form before quoting clause numbers.
- The Architect administers the contract: issuing instructions, valuing variations, certifying payment and certifying completion.
Time and money mechanics
- Interim certificates are issued monthly on valuation; retention is deducted at the stated percentage and released in two halves - on practical completion and at the end of the defects liability period, commonly 12 months.
- Variations are valued in order: bills of quantities rates where the work is of similar character and executed under similar conditions, then fair valuation, then dayworks.
- Extensions of time are available only for Relevant Events listed in the contract, with notice given within the stated period. Concurrent delay normally reduces or defeats prolongation cost even where time is granted.
Worked example
Contract sum HK$120 million, liquidated damages HK$60,000 per day, completion due 30 June. Practical completion is certified on 10 July, and 6 days of extension have been granted for late structural drawings. Chargeable delay is 10 − 6 = 4 days, so liquidated damages are 4 × HK$60,000 = HK$240,000.
Before certifying, check that the extension event affected the critical path, that notice was given in time, and that the rate is a genuine pre-estimate of loss - a rate set to punish is a penalty and unenforceable.
Traps that cost marks
- Certifying an extension of time without checking the contractual notice.
- Confusing a provisional sum with a prime cost sum, and omitting the contractor's profit and attendance.
- Releasing retention once instead of in two stages, or releasing it before defects are made good.
- Treating a letter of intent as a binding contract for the whole of the works.
- Forgetting to check whether the form makes mediation a condition precedent to arbitration.