How to Increase the Quality of your Construction Contract Work

The main goal for a construction contracting company is to carry out a construction project’s work in a way that meets the project’s objectives, at a high level of quality. It is up to the project manager to meet these objectives, which can occur through the completion of four phases: initiation, planning, execution, and closing. Once these phases are finished, the contract is deemed complete.

Together, these four phases are known as the contract life cycle. One important aspect that runs across the four is effective management. Aspects of management that include communication, documentation, and budgeting are all critical to a successful project.

Here, I’ll explain each of the phases of the life cycle in greater detail, along with a discussion of some of the benefits of using life cycle management.

1. The Initiation Phase

During initiation, the project need is identified. Perhaps it’s fixing a problem the customer is facing, such as a deteriorating building. It could also be taking advantage of an opportunity, such as new land purchased that could be home to a new business, or a favorable economy that drives more construction.

The project’s feasibility and justification is also assessed at this stage. There are many variables the project manager needs to account for to determine if the project will be worthwhile. They include answering questions like, will we make money, and do we have the manpower to proceed with this project?

2. The Planning Phase

In the planning phase, the project is further developed. Specific items are assessed and planned for, like floor plans, budgets and the resources needed to complete the project. Once these items are determined, the project manager explores any potential threats to the project. During this risk management assessment, a plan to reduce the probability or even avoid these risks is derived. This risk assessment is communicated to the stakeholders.

After the risk management process is complete, the plans are formally documented. The contract is drafted and includes, but is not limited to, items such as target dates, assurance and control measures, and an acceptance plan. The contract is then presented to the customer.

3. The Execution Phase

After the customer signs the contract, the project is ready to be executed. During execution, the project team works to complete the project, communicating the status to the project manager regularly, preferably by documenting it in a status report. The project manager then uses this information to communicate with the accounting department to be sure all costs and progress are consistent between what has been recorded and the actual job site progress. (For additional information, refer to the MKS&H article “Do You have a True Picture of your Construction Company’s Financial Position” , which emphasizes the importance of communication between management and the project team.)

The project manager also compares the actual progress to the budgeted progress, to be sure the project is adhering to its timeline. If the project is running behind schedule, action should be taken, if possible, to make up that lost time. Perhaps the project manager could recruit more workers to meet the deadline, or tell the company that the project will not be completed on time. Whether or not corrective action can be taken, any variations from the original plan should be recorded, and key stakeholders should be made aware of any of these modifications.

As deliverables are met throughout the execution phase, they should be evaluated for quality to be sure the work continues to meet any necessary standards and regulations.

4. The Closing Phase

At this phase, final project deliverables are completed, the building inspected and documentation such as the deed or other ownership/regulatory documents is handed over to the customer. The project manager and the team also evaluate the project overall. They review and analyze those things that went well in addition to those that didn’t, including budgeted resources versus actual resources used. These metrics are key to planning more accurately for future projects.

Why Use Contract Life Cycle Management?

The phases discussed above are a solid way to carry out a project from thought to completion. They allow you to document the steps, keep the activities organized, and prepare for any modifications in the plan.

In order for a project manager to successfully manage the contract life cycle, he or she must, throughout the entire life cycle, document all events and assess the effect of any current or potential modifications.

• Noncompliance can be an issue in construction contracts. Documenting these steps, and any modifications, helps decrease the chance of litigation while also keeping the project manager and the team organized throughout the project.
• With the strong records that come about as a result of following life cycle management, the project manager maintains a better overview of the project, which makes it easier to make any necessary modifications. The phases provide a complete picture and give a project manager an overview of items he might not otherwise learn of, including any special terms or discounts offered by suppliers and payment status.
• It is possible and somewhat common for disagreements between the customer and contractor to go to court. Using life cycle management could avoid those litigation issues, as the contractor’s stance can be supported by sufficient documentation.
• When the contract is carried out correctly, the customer’s expectations are met. Following the project life cycle process would ideally keep the project on time, or possibly even ahead of schedule.

The contract life cycle can be interpreted differently for different projects, but following these four steps give a project a stronger chance of being completed successfully. The difference between a completed contract and a completed quality contract is how the steps are managed. The communication, documentation and budgeting are all important to turning quality work over to a customer in the most cost-effective way.

If your company needs help improving the management habits and techniques required for successful budgeting and recordkeeping, contact us. The MKS&H construction accounting experts have the experience necessary to give you the direction you need to strengthen your project life cycle and ultimately your bottom line.