We have moved some of our Procurement & Construction projects from progress based payment to milestone based payments. The major reason was to motivate contractors to expedite milestone achievement, and get paid faster. However, we found that most of the time delay had come from owner, consultant, designer or suppliers (not under contractor). In those cases, contractor resisted to get paid nothing, for not their mistake. We had to amend few contracts to move back to progress payments, or we had to breakdown milestones into smaller units. For few projects, it went smooth and milestone payment were successful. So you may have to see what you can offer and what are your limitations, before introducing this change. A survey feedback from your routine contractors can also be helpful in decision making.

In the US, Texas or New York are largely considered "neutral territory" whereas in Europe, until very recently UK law was considered neutral. I think that may change with the recent political upheaval.

Or try international trade law?

www.jus.uio.no/lm/index.html

In the case of one party proposing Indian law and the other proposing Singapore law, the parties may well choose the law of England and Wales as both Indian law and Singapore law are based upon English and Welsh common law. (Note that there is no such concept as "UK law" as one commentator has suggested below).

However, a party should consider a wide range of factors before proposing a particular governing law and should weigh up the legal and commercial advantages and disadvantages of all the options.

One factor may be the degree of certainty that a contract will be interpreted in a particular way. English law adheres to the doctrine of binding precedence. Some legal systems do not. This could lead to significant uncertainty as to how the law will be applied.

In English law, it may be perceived that the courts allow a greater degree of freedom of contract. Subject to certain exceptions, freedom of contract in English law means that commercial parties are completely free to make disastrous bargains. This illustrates the comparative reluctance of the English courts to interfere on policy or other grounds to rewrite the parties' contracts for them.

For example, in English law it is possible, provided very clear wording is used, to include an exclusion clause that excludes any and all liability whatsoever, even for a deliberate breach of contract. And there is still no recognition of a duty of good faith being applied generally to commercial agreements (but watch this space!). This may or may not be an advantage to you but it remains the case that the courts are likely to give effect to the wording of the contract without imposing their opinions as to what does or does not amount to good faith.


And you may wish to consider the approach of a particular legal system to particular clauses.

For example, in English law, a liquidated damages clause will be subject to the clarification set out recently by the Supreme Court with a subsequent judgment, applying that test, indicating that a freely-negotiated LD clause is likely to be upheld subject to the requirements set out by the Supreme Court. Under UAE law, such a provision would be subject to Article 390(2) of the Civil Code and either party may apply to the court to adjust the agreed amount of compensation so it is equal to the loss. If Indian law were to apply, we would have to consider the effect of section 74 of the Indian Contracts Act 1872.

English law will also recognise an asymmetric jurisdiction clause.

And it may be that the choice of law clause will be reflected in the choice of jurisdiction. So, English law and the English courts. If the choice of courts is to reflect the choice of law, it may well be the consideration should be given to the efficacy of the court system and the technical expertise and other qualities of the judges.

Lots to consider.

Hello Brian. Your question is an interesting one as margin and value can be very different things, and will depend very much on the context of the SOW as Bruce Everett says. However as a supplier, i would say that you must be clear what you want to call success. For example, if you only what cost control, and that a supplier simply performs what you ask, then margin wording about delivering on time and budget are what you should focus on. If on the other hand you have a degree of execution uncertainty and/or want to encourage innovation, you should aim towards a relational contract framework, where you ring-fence and control additional costs, and build a mechanism to evaluate scope changes as a function of meeting your value targets. These could be risk mitigation, safety, or simply achieving a technically challenge project.
All too often we see people trying to get the best of both worlds..ie innovation at low or no scope change cost, and then ultimately failing to get either...hope this helps, Merrick

Hi Brian. Liability, indemnity etc are common terms which reflect the inherent deal risk or at least the desire for risk allocation. However, the rubber hits the road when you look at the Statement of Work (SOW) and Service Level Agreements (SLAs). The SOW is where the buyer/supplier either is fully informed about the requirements, roles/ accountabilities, and risks, hence, whether they have to factor in a contingency for risk (which is defined in ISO31000 at 'the effect of uncertainty on outcomes'). The more uncertainty then the more risk and the more contingency the supplier will typically build into the price. Then the SLAs typically attract 10-15% of contract value'service credits' for non-performance (the intent is to reflect the value of the margin). Depending upon how tough or unrealistic these are negotiated will also impact how much contingency the supplier will try to add in to the price. Trust this helps you Brian

Update. Subcontractor came back to state that their legal team investigated and determined there was no information to support their primary NAICS code statement. They certified as a Large Business.

It depends on the intent for which data will be used.
CPI measures inflation as experienced by consumers in their day-to-day living expenses whereas ECI indicates whether employment cost changes are rising or falling

If the 'change in labor rate' data is used for, to adjust compensation so that purchasing power is maintained, then the CPI would be a good source. However, if data will used to compare salaries so that it remain competitive within the labor market, then the ECI could be used.

It is a good topic to talk about. I struggle with what metrics to report on. It only takes one bad contract to cost the organization lots of money but it is hard for people to grasp it. How do you report on that? Currently, I report on the number of contracts the organization has and the amount of money expected to spend under a contract. Cost savings and cost avoidance is reported by my department through our category managers. I believe the category managers take the first offer from a vendor and then subtract the final number after negotiations to calculate cost avoidance. Cost savings is calculated if the organization will contractually pay less under this contract than it historically has for that same commodity. These definitions were agreed to by both our CFO and our Director.

Patrick, are you familiar with IACCM's "10 Pitfalls" research? This study looks at the top value erosion areas. Flip the erosion perspective and you'll quickly find key areas where by improving your capabilities you will improve ROI. Please reach out to me if you wish to discuss this in detail.

Regards,
Katherine

Katherine,

Thank you for the excellent recommendation. I've reviewed the research in the "10 Pitfalls" and it has provided me with concepts that I will research further internally.

Patrick, in addition to this first part of the "ROI of Contract Management", I'd also recommend to continue reading Tim's part two of that blog: blog.iaccm.com/commitment-matters-tim-cummins-blog/the-roi-of-contract-management-part-2
You may have already read how the article describes how the Contract Management role has evolved. Now, in this new section, you will have the chance to identify the benefits that can be achieved when creating and demonstrating value from such a role.
Regards,
Pablo