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Name: Sharman Mohamed Shariff Student ID No: CGS00421017

JANUARY SEMESTER 2010

CONTRACT MANAGEMENT - EMCM 5103

ASSIGNMENT 2

SHARMAN MOHAMED SHARIFF

CGS00421017
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

Question 1

Describe how you would manage the contract to ensure that the project organization and its
execution will lead to a win-win situation for both your company and your client (owner). Use
all the knowledge and techniques you have learnt from this module.

To manage a contract of this magnitude with its myriad of complexities pertaining to different

parties involved, especially ones than spans continents, an approach to contract management that

is aimed at achieving a cooperative organization is paramount. Companies that operate across

international borders need executives and managers who understand cross-cultural customs and

business practices and how to promote efficiency and optimize profitability in a global

environment. Many corporations purchase supplies or sell products in other countries. A

company in Sudan may have a supplier from the Czech Republic (as per the case study). The

design work was carried out from an office in Holland while the contractor hailed from

Malaysia. Global Management techniques are needed in order to operate under these conditions.

What follows are some of the anticipated problems that a Malaysian contractor could faced when

operating in a foreign country:

 Obtaining permits to run a business in another country.

 Complying with the rules for foreigners working in another country.

 Understanding the employment laws of other countries.

 Understanding the business culture of other countries.

 Understanding social customs of other countries.


Name: Sharman Mohamed Shariff Student ID No: CGS00421017

A cooperative organization is where the owner and the contractor work together to manage the

risk and achieve a better result for both of them.

There are four fundamental elements for a binding contract to be formed between two companies

and there are:

 Offer

 Acceptance

 The intention to be legally bound

 Consideration

In the case study presented above, the company was awarded an international contract by the

client worth USD 22 million. This constitute an offer by the client and acceptance by the

company by virtue of, in law, an offer is both a statement of the terms upon which a party is

willing to contract (the client) and an expression of willingness to do so if an acceptance (the

company) is given of those terms. An acceptance of an offer becomes effective when it has been

communicated to the person who made the offer (the client). As in this case, an acceptance has

taken place since the contract has been awarded to the company.

The contract specifically states that the company’s job is to ‘fabricate and install’ a 100,000

gallon oil bulking containers in Sudan. The company will also supply supervisors and managers

as well as equipments from its headquarters in Malaysia. This type of contract is typically

referred to as a ‘labour sub-contract’ since the design work is performed by a consultant from

Holland and it is most probable that this design office will have their engineers and clerk-of-
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

works at site to oversee the works undertaken by the company to ensure compliance to their

specification and design.

As the main material, steel, is supplied by the client themselves through their supplier from the

Czech Republic, any changes to the price of steel will not affect the bottom line of the company.

In any project endeavor, the aim should be to develop a cooperative organization in which the

owner and contractor work together to manage the risks involved and to achieve a better result

for both of them. As with all organizations, it is in the owner’s best interest that all of their

‘employees’ (the contractors) are motivated to achieve their objectives. This is done through

devising a contract that attempts to align their ‘employees’ objectives with their own by properly

motivating them. This ex-ante incentivization would be all that is necessary if the project

conditions were entirely predictable throughout its life. Due consideration must be taken into

account since Sudan is famous for its internal political turmoil and in-fighting between its many

warlords. Thus, farsighted post governance contracts are necessary; contracts that are able to deal

with any new risks or uncertainty that may arise as the project progresses, which are able to deal

with unforeseen events, whether adverse or otherwise. By supplying the main raw material for

the project, which is steel, the owner has mitigated the risk of price escalation from the company,

thus giving impetus for the company to complete the project in-time.
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

Map of Sudan

Bulking containers are usually constructed near ports for easy transportation of crude oil via oil

tankers. The most logical location for the site would be Port Sudan. This is actually an advantage

for the company as this will make it easy to transport machineries and manpower to the worksite.

Estimated workforce that is needed is 10 for management, 20 skilled workers and 50 non-skilled

workers. Shipment of steel would also be via this port.

Usage of standard forms of contract would be highly recommended especially in the field of

construction in order to avoid ambiguity among different standards adopted by each country.

Standard forms of contract are generally prepared by an organization or body which has genuine
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

interest in a particular industry. For building and construction industry, specifically in the United

Kingdom, the most widely known are the suite produced by the Joint Contracts Tribunal (JCT).

This body is drawn up from a range of representative professional and trade bodies within the

construction industry. JCT produces more than sixty forms of contract and subcontracts together

with guidance notes on their use.

Standard forms of contract purport to provide a representative viewpoint of the industry which

they serve. Rather than favor one particular party to the contract, standard forms should represent

both parties on an equal and fair basis by providing for an equitable distribution of risk.

The main issue pertaining to usage of standard forms of contract is, clients are demonstrating that

they wish to abide by industry standards and not impose unfair terms that shift the balance of

power too much in their favor.


Name: Sharman Mohamed Shariff Student ID No: CGS00421017

Question 2

a) A company accidentally displays on its website an advertisement for a LCD projector with a
price tag of RM 500, while the actual price is RM 2,500. A buyer places an order for 10 units.
Comment on the legal aspects of the situation.

The legal question that needs addressing is whether an advertisement can be construed as an

actual offer by a company. Generally, a simple price quote in an advertisement is not an offer; an

advertisement according to Partridge -v- Crittenden 1968 1 WLR 1204 is an invitation for offers

only. (http://en.wikipedia.org/wiki/Partridge_v_Crittenden). The company can argues that its

action of putting on display on its website an advertisement for a LCD projector with a price tag

of RM500 is not an offer but an invitation for offers only. A buyer placing an order for 10 units

at RM500 per LCD projectors is in fact the party making the offer i.e. RM500 per LCD projector

and the company is the party that would need to accept the offer of RM500 per LCD projector.

However, the content of the company’s website could have a bearing on whether the

advertisement will be construed as an offer or an invitation for offers. If in the website there is a

detail online ordering page and the buyer had placed the order online an argument could be made

that there is a valid contract between the company and the buyer. Thus, the company would be in

breach if they fail to deliver 10 units of LCD projectors to the buyer.


Name: Sharman Mohamed Shariff Student ID No: CGS00421017

b) Company A prepares a preliminary specification and a Request for Proposal (RFP) for the
construction of a 10-storey building on a lot of land near a hill-slope. A tender was called. Five
companies responded, and after a thorough evaluation process, Company B won the tender. A
contract was then negotiated and signed.

During the construction process, several problems occurred. Firstly, the illegal settlers
occupying one corner of the land are unhappy with the compensation and refused to
move. Secondly, the soil is not strong enough to support the building, and additional
piling is required which will increase the construction cost by 45%. Thirdly, a land-slide
occurred on another part of the state caused the State Government to suspend the work on
all projects adjacent to hill-slopes for three months.

Using your contract management knowledge and skills, describe how you would provide
safeguards and provisions for compensations that these problems will not cause company
B to lose money.

Company A, in a traditional procurement strategy is known as the ‘client’; an organization which

desires the project, often owns the site, usually funds the project and is frequently the end-user.

In the first problem described above, illegal settlers at one corner of the site refused to move out

due to their unhappiness with the compensation given by Company A (client). The onus lies with

Company A to renegotiate with the illegal settlers to move out of the site since the contract is

already awarded to Company B which would have expect that the site is already cleared of

settlers; illegal or otherwise. Depending on the contract, Company B has to its discretion to apply

for ‘Extension of Time’ as well as ‘Loss and Expense’ claim while in-waiting for Company A to

clear the site from illegal settlers.

As for the second problem, this is a technical problem most probably happened due to inadequate

soil investigation carried out at the site. A mistake was done by the structural engineers whom

had designed the foundation based on insufficient data. Company B is only a contractor whom

was awarded the contract based on items presented to them in the Bill of Quantity. Any variation
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

from the original contract would constitute a ‘Variation Order’ and as such, the client must bear

this increase of cost.

General condition of contract would usually incorporate a clause called ‘Force Majeure’ (Act of

God). A land slide would be an act of God where when such events occur; it is beyond the

control of any PARTY. If an event of Force Majeure occurs, the performance of affected

contractual obligations of the PARTIES (Company A and Company B) shall be suspended

during the period of delay caused by the Force Majeure (in this case, a stop-work order has been

issued due to a land slide that occurred in another part of the state).

In the event of Force Majeure, both parties shall immediately consult with each other in order to

find an equitable solution and shall use their best reasonable efforts to minimize the

consequences of such Force Majeure.

So, for the part of a Project Manager or a Contracts Manager, it is important to be sure that these

clauses are incorporated in the contract in order to protect the interest of Company B.
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

c) Company C submitted a proposal to Company D to design and implement a


comprehensive business management information system for Company D that will ‘meet
Company D’s ‘present and future requirements’ at a price of RM 500,000. Company C
also promised that ‘satisfaction is guaranteed’ and ‘pay us when you are happy with the
system’. After a series of demonstrations where Company C demonstrated its capability
to design the system and how the new system will look like, Company D accepted the
proposal.

Comments on the risks involved for both companies and how would you approach the
entire proposal.

Company C’s risks of promising ‘meeting Company D’s present and future requirements’

could backfire on them if the business management information system for Company D

could only satisfies Company D’s present but NOT its future requirements. Companies

grow and what is designed today may not be adequate for its future requirements. By

making this statement, Company C has inadvertently open itself up for the

Misrepresentation Act 1967, where if the statement cannot be proven, and the party

making it cannot show that he or she had reasonable grounds for believing it to be true.

Company D’s remedy is to recover damages.

‘Satisfaction is guaranteed’ and ‘pay us when you are happy with the system’ are risky

statements. How do we measure satisfaction and happiness? In English law, there is a

distinction between two types of terms of contract, conditions and warranty. Conditions

are essential terms, the breach of which allows the injured party both to rescind the

contract and to claim damages. A warranty is a lesser term for the breach of which the

only remedy is in damages. The use of the term ‘warrant’ in a contract may be held to be

equivalent to guarantee and its breach give rise to a right to rescind. As with the case

above, Company D have all the rights to rescind should they feel that the product offered
Name: Sharman Mohamed Shariff Student ID No: CGS00421017

by Company C does not live up to their expectation, and they do not have to pay for

whatever that has already been delivered to them too!

What are the risks associated with Company D then? For one, lack of motivation from

Company C due to incomplete project and comments after comments by Company D to

get the software ‘just right’ could hamper the productivity of Company D. Due

consideration must be taken into account that the software being developed by Company

C will never be completed.

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