Contract
Contract is defined as a legally enforceable agreement between two or more parties (individuals, businesses, organizations, or government agencies) with mutual obligation to do or to refrain from doing specially one that is written and enforceable by law. Contract is made on the writing or document containing such an agreement. Contract is legally binding agreement so there remains legal remedy by law for breach of contract. There are different practices in different countries about contract law. In Nepalese perspective, The Contract Law 2000 (2056 BS) and Public Procurement Act 2007 (2063 BS) are the major prevailing laws regulating contract. According to section 2 sub-sections (a) of The Contract Act, 2000, 'Contract' is an agreement enforceable by law concluded between two or more parties for performing or not performing any work. Contract jurisdictions usually retain a high degree of freedom of contract, with parties largely at liberty to set their own terms. Broadly, contract is a form of economic ordering common throughout the world but different rules apply in jurisdictions.
Public Contract
Public contract is a means to deliver public services through market mechanism. Like that of definition of contract, public contract is also a legally enforceable agreement of a party to undertake/do the work or improvement as desired by a public authority, say government in broad sense. Such public work may be construction of public utilities, protection or facilitating the public lives and many more. Public contracts are largely governed by the general law of contracts, in Nepalese context, by Contract Act 2000 and Public Procurement Act 2007 are major. Public contract is little stricter, individuals and corporations are held to stricter standards in their dealings with the government than in their private dealings. This is one of the functions of public administration where identity and professionalization of officials are demonstrated. The Public Procurement Act 2007 of Nepal defines procurement contract as “Procurement Contract means a procurement contract entered into between a Public Entity and a supplier or construction entrepreneur or Consultant or service provider..."
Contract Management
Contract management is the management of contract that includes designing of terms and condition, negotiating the terms of condition, ensuring the compliance of terms and condition and documenting any changes occurred during its implementation or execution of the contract.
Hence, Contract management involves
- Designing contract
- Negotiating contract
- Ensuring compliance of the contract
- Documenting the changes occurred in the contract
Contract management theory is associated with Principle-Agent theory. Principle is government and agent is the party or person who does the work. There is always conflicting relation between principle and agent. Government wants to reduce the cost, maximize the output, wants right time, right place, right method, right quality and right quantity. On the other hand agents want to maximize the profit and market share. So, managing this conflicting situation is contract management. There must be some mechanism to address the conflicting aims/objectives of parties of contract.
This mechanism involves
1. Market Information: - Government must have some market mechanism to collect information from the market. This can be done in two ways; first establishing an intelligence unit with the government unit another is to hire another agent for collecting information about the activities going on with the contract. The quality of the work, compliance of the contract rules are to be verified by the information collected.
2. The Selection of Agent: - Setting the criteria or the basis to select the agent what should be made earlier. The level of experience required, standard of economic background, public image, strength, etc should be determined before performing a contract. These things are basic to implement a contract successfully.
3. Monitoring the Performance of Agent: - There must be some mechanism to monitor the performance of the agent. This can be done by setting up a monitoring unit or committee with in the public office or by appointing a third party agent. Monitoring can be conducting on the regular basis or on the intermittent basis.
Contracting is the prime option for the government today to operate and spend public money when resourcing out/contracting out concepts are emerging even in developing country like Nepal because of new public Management concept and New Public Service concept. No doubt, there are some issues of corruption in contracting and procurement. Corruption in procurement affects the efficiency of public spending and donors' resources, creates waste and, ultimately, affects the quality of public life. Corruption in public contracting can take many forms, including bribery, deception (fraud) or simple abuse.
Required Government Policies for Effective Contract Management
- Decision to contract: In the first phase, government has to decide when to make a contract. This involves deciding by government to purchase or sell goods or contact or services, or to outsource the management of a unit. Government determines what it needs to buy or sell or privatize (technical requirements, specific characteristics) and how it will go about it (contracting method, agency responsible, etc).
- Planned Direction: - Type of agent to be selected should be determined in advance with respect to the task to perform. Related experience, required standard of economic background etc must be determined. Rules that follow these principles also provide a good basis to prevent corruption.
- Paying Structure: - "When to pay" and "how to pay" must be determined and mentioned in the contracting paper. Pay structure can be: - Fixed pay method; partly pay method, reimbursement method, etc.
- Contract Process: - The process of contracting for different cost range must be determined. Other factors related to contract process involves type and mode of detriment, time and rang of advertisement, etc
- Selection Basis: - Selection basis like sole selection or competition base selection should be determined to different circumstances.
- Setting up the Monitoring, supervision and Evaluation process and standards.
The contracting needs minimum confidentiality and strictness. It is necessary to establish review systems, foster objective evaluation criteria and provide structures for it. It is also necessary to promote transparency and accountability, to facilitate oversight and citizen participation, and brings legitimacy to governmental decisions. Written procurement procedures should outline the whole process, using explicit criteria to award contracts. Public Procurement Act 2063 (2007) of Nepal exists to make legal provisions in order to make the procedures, processes and decisions relating to public procurement much more open, transparent, objective and reliable, to obtain the maximum returns of public expenditures in an economical and rational manner by promoting competition, fairness, honesty, accountability and reliability in public procurement processes.
Resources Used:
3. Class lecturer by Shree Krishna Shrestha, Public Administration Campus, TU, Jamal Kathmandu, June 16, 2011
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