By Eugene le Roux, FSAIRAC, and Eamonn Ryan
Pricing is only one part of the contracting process. Once the price and payment mechanism have been established, another question arises: what evidence should be required before payment is made?
The broader lesson is that contract management does not have to be separated from engineering management.
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This may appear to be an administrative matter, but it can have a much greater significance in project management.
For example, are there certificates that should be approved by the relevant quality-control personnel before hardware is accepted? Who must approve the associated reports? What happens to those reports after acceptance? And how are they incorporated into the project’s permanent records?
These questions become particularly important on complex HVAC&R projects, where equipment and components may pass through several stages of inspection, testing and acceptance before they become part of the completed system.
A Certificate of Conformance (CoC), for instance, can provide evidence that a supplied item conforms to specified requirements. But should the contract simply state that a CoC is required, or should it go further?
Who is responsible for approving it? What exactly must it confirm? At what stage must it be submitted? What happens if the certificate is incomplete, or if the supplied equipment does not conform to the specified requirement?
The same principle applies to inspection and test reports.
If a particular inspection is important enough to affect the project’s assurance, should it not also be identified as a contractual requirement? And if it is a contractual requirement, should its completion be linked to a defined milestone?
This is where the contract can begin to operate as an active project-management instrument.
Instead of payment being triggered simply because a contractor has submitted an invoice, the contract can establish a sequence in which payment follows completion, verification and acceptance of a defined deliverable.
The intention is not to make payment unnecessarily difficult. Quite the opposite: a well-designed process should make it clearer to everyone what has to be provided and when payment becomes due.
The contractor knows what evidence is required. The client or consultant knows what must be checked. The quality-control function knows what documentation forms part of the acceptance process. And the project manager has a clearer basis for determining whether the relevant stage has actually been completed.
Could this approach also help prevent disputes?
If the contract clearly establishes the required documentation, approval responsibilities and acceptance criteria, there is less room for disagreement about whether a particular milestone has been achieved.
But there is an important qualification.
Documentation should not be generated simply because the contract can demand it. Excessive or irrelevant paperwork can slow down a project without providing meaningful additional assurance.
The question should therefore be: what evidence is actually necessary to demonstrate that the required outcome has been achieved?
This distinction is important in HVAC&R because project assurance extends well beyond the delivery of equipment. A chiller, condensing unit, air-handling unit, refrigeration system or control system may have been manufactured correctly, but that does not necessarily mean that the completed installation will perform as required.
There are successive stages of assurance.
Equipment may need to be inspected and accepted. Installation may need to be verified. Pressure or leak testing may be required. Electrical and control systems may need to be checked. The system may then have to be commissioned and its performance demonstrated.
Each stage can potentially produce evidence that supports the next.
This creates another form of the assurance chain discussed earlier in the series: requirement, delivery, inspection, acceptance, payment and progression to the next stage.
The contract can provide the framework that holds that chain together.
It can also establish what happens when the chain is broken. If equipment does not conform, if a report is incomplete or if a commissioning requirement has not been met, the contract should provide a defined mechanism for dealing with the situation rather than leaving the parties to negotiate a solution after the event.
The broader lesson is that contract management does not have to be separated from engineering management.
Pricing determines how financial risk is allocated. Statements of Work define what has to be done. Technical requirements establish what the system must achieve. Inspection and certification provide evidence. Acceptance establishes that the requirement has been met. Payment then follows according to the agreed contractual mechanism.
Seen in this way, contracting becomes part of the project’s assurance architecture.
Perhaps, then, the question should no longer be whether the contract is merely a legal and commercial document.
Perhaps the better question is whether we are making full use of the contract as one of the tools available to manage the engineering, financial and technical risks inherent in an HVAC&R project.
