Sep 03, 2023
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How The Government Terminated Contracts With Two Construction Companies
TenderingClaris Zimbiti | Aug 24, 2023 | | | |
Have you ever wondered what could cause a real nightmare for businesses in the world of government contracting?
Well, the most dreaded words: "Your contract has been terminated." This is what usually happens if you fail to meet your contractual obligations or deliver subpar work.
In this blog, I'll dive into the story of two small construction companies whose contracts were terminated by the government. We'll also explore the possible reasons why they failed to implement these projects.
And that's not all – I’ll share some valuable insights on what these contractors could have done things differently to avoid this situation.
So, let's buckle up and dive into the story of how their contracts were terminated.
Table of Contents
- Contract Termination: A Harsh Reality
- Possible reasons for projects failure
- 7 Strategies to avoid contract termination
Contract Termination: A Harsh Reality
Two small construction companies were awarded contracts to build classroom blocks in Solwezi, a province in Zambia.
The Slowezi council wasn’t happy with not only lack of progress. But also there were some serious shoddy works .
So the council had to terminate their contracts.
But the thing was that…
They had been paid some money in advance and still didn’t make much progress.
As a result of that, the Council was now taking legal action to recover the money back from the companies.
Contract termination is a harsh reality, but it doesn’t have to be your reality Source | ZNBC
Possible reasons for projects failure
If we look at the story more closely, we can't say they didn’t know how to do the work.
Neither can we say they didn’t have the right equipment. Because what kind of special tools do you need to build a school block's foundation?
So the question remains? Why did they fail to implement the project?
Let’s explore some possible reasons:
Lack of Financial Capacity:The contractors could have been facing major cash flow problems, which led them to cut corners, do shoddy work and make no progress.
You see, Government contracts often involve big financial commitments.
So you need to make sure that your business has some money at least to fulfill the contract obligations up to completion without risking project failure.
Even if you get an advance payment, usually it’s not enough. Remember, you can only get an advance for up to 20% of the whole contract.
Poor Project Management and Communication:It is possible that the contractors might have lacked clear project plans, and communication strategies to engage with the Solwezi council.
Lack of planning could have led to chaos, misunderstandings, and conflicts with the council.
The lack of proper communication might have added fuel to the fire, making it harder to solve problems quickly.
Mismanagement of money: Mismanagement of the funds received in advance could have played a significant role in project failure.
If the companies failed to allocate the received payments properly or underestimated the project costs, they might have run out of money during construction, which could have caused delays and a lack of progress.
7 Strategies to avoid contract termination
By now, I guess you might be wondering "What could these two contractors have done differently to avoid this situation?
What could they have done better? What strategies could they have used to prevent themselves from getting into this mess?”
Here are some strategies that could have prevented cancellation of their contracts:
1.Regular communication and updates
From the beginning of the project, the two contractors should have maintained regular communication and provided updates to the Solwezi Council .
They should have set up regular meetings with the council to discuss project progress, challenges, and milestones achieved.
During these meetings, the companies could have openly shared progress reports and any potential challenges they were facing along with their game plan to solve them.
In instances where delays occurred, they could have informed the council right away, explaining the reasons behind the delay. Also suggesting viable solutions to fix the problem without affecting the project's overall schedule could have helped.
This kind of communication helps to build trust, manage expectations, and address any potential problems before they escalate.
2. Effective Project Management
Proper project management plays a pivotal role in smooth coordination of the whole project and prevents delays, cost overruns, and quality issues.
The two construction companies could have appointed experienced project managers with a proven track record of successful government projects.
You see, project managers play a key role in implementing a robust project management system to monitor progress and allocate resources efficiently. They also oversee the entire construction process, coordinate teams involved and manage potential risks.
From the beginning, the project managers should have prepared a detailed project management plan that outlined the project's scope, objectives, timelines and key deliverables.
They also should have implemented robust quality control measures.
For example, the companies could have done regular site inspections at different stages of the project while they were building.
They could have collaborated with the council, inviting them to inspect the construction site periodically.
During inspections, if any problems with quality or non-conformance were found, the companies could have taken immediate action to rectify the problems.
This strategy helps build trust and shows commitment to maintaining high quality standards.
3.Budget Allocation, Monitoring and Control
Before starting the projects, the two construction companies should have prepared detailed budgets that accounted for all the costs of building the classroom blocks.
This perhaps could include labor costs, material costs, equipment rentals, and other project-related expenses.
They should have carefully tracked all their costs. They also should have looked at their financial reports on a regular basis to make sure their spending was in line with their budget.
By keeping a close eye on costs, they could have identified any potential deviations or overspending early on.
4. Negotiating with Suppliers
If the two companies were keeping a close eye on their finances, they could have seen that the money they have won't last until the next payment.
So they could have negotiated better payment terms with their suppliers or subcontractors.
For example, two construction companies could have looked for cement suppliers and negotiated a credit limit of maybe $15,000.
So if they see that they could be in a potential financial crisis, they could go back to the cement suppliers and ask them to increase their credit limit, maybe to $30,000.
By building strong relationships with suppliers and negotiating favourable terms, they could have freed up more money for other costs.This could have kept the project moving along smoothly.
5.Proper Handling of Advanced Payments
Earlier in the story, I mentioned that the council had paid these companies advance payments. In such a case, the two construction companies should have been very careful and only used the money for project-related costs.
By avoiding using advanced payments for unrelated purposes or non-project expenses, you will have the money when it's needed.
This also helps in making sure that you don't cut corners or end up using low-quality materials.
6. Consider other financing options
In government contracts, payment delays are inevitable. The two contractors should have identified that risk from the start.
If they knew that they weren’t financially stable, they should have looked into alternative forms of funding such as lines of credit or invoice factoring. These options allow you to get money based on your unpaid invoices.
This means that you can bridge the gap in cash flow while waiting for government payments.
But keep in mind that it is essential to weigh the costs and terms of different financing choices.
7. Partnering or teaming with other contractors
When these two contractors realised that they weren't financially stable, they could have embraced teaming with other contractors who had financial resources.
If they had done that, the two construction firms could have:
- Strengthened their financial capacity to meet the project requirements through extra cash injection.
- Spread the financial risks by pooling resources together. The burden could have been shared among the partnering companies, reducing the impact on a single entity.
- Better project execution due to knowledge and expertise brought in by the other partners
This collaborative approach could have reduced the risk of project failure and increased their chances of meeting contractual obligations.
Wrapping Up
Here you go- you've seen the dark reality of project failures and what could happen if you don't fulfill your contract obligations.
Reflecting on the tale of these two construction companies, one pivotal lesson surfaces with utmost clarity - the undeniable importance of effective project management.
We have also seen that challenges may arise. But with strategic planning and proper risk management, you have the power to successfully implement your government contracts.
And make your government clients so impressed that they want to work with you more.
Over to you now - What amazing things can you do if you embrace the lessons you've learned?
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