Current Contract Templates: Company A
Company A utilises a bespoke set of capital procurement contracts derived from the Fidic contract suite, tailored to the company’s risk allocation profile. These agreements cover construction services (on a lump sum turnkey or re-measurable basis), EPCM services, consultancy services, and delivery of plant and equipment with minimal site activity. These templates, known as the GCCs, have been in use since.
Notably, Company A’s capital procurement templates operate independently of the templates used for other procurement activities such as operational supplies and services.
This divergence originated from the Contracts system implementation, which excluded capital procurement. Consequently, procurement for goods and services within capital projects follows GCC templates, while general supply chain procurement adheres to separate standard templates developed by R. From a legal standpoint, this separation is inefficient as contract forms are dictated by the corporate function initiating the request rather than the procurement subject matter. However, given the extensive alignment of Company A’s sourcing documentation with the GCCs and the personnel’s familiarity with them, transitioning to the general Supply Chain templates would require significant effort and training. Given resource constraints within the Legal Department, maintaining the status quo is recommended.
This divergence originated from the Contracts system implementation, which excluded capital procurement. Consequently, procurement for goods and services within capital projects follows GCC templates, while general supply chain procurement adheres to separate standard templates developed by R. From a legal standpoint, this separation is inefficient as contract forms are dictated by the corporate function initiating the request rather than the procurement subject matter. However, given the extensive alignment of Company A’s sourcing documentation with the GCCs and the personnel’s familiarity with them, transitioning to the general Supply Chain templates would require significant effort and training. Given resource constraints within the Legal Department, maintaining the status quo is recommended.
Construction-Specific Contract Templates
Last year, Company A collaborated with the Legal Department to develop a standardized set of contract templates based on the Fidic suite, aligned with Tier 1 EPCM and Construction Services Agreements. The templates were finalized but never implemented due to a lack of commitment from the BUs. Currently, Company A continues to use the GCCs, except when:
Procuring EPCM services from a Tier 1 supplier (Hatch, TWP, and DRA Minerals—though only one project has used the Call Off under the GFA arrangement). Engaging Tier 1 construction contractors. However, no known construction contracts have been placed in the last year using the Construction Services call-off agreements developed under prior collaboration agreements. Instead, Company A continues to use the GCC contracts for construction services, even with Tier 1 contractors.
Procuring EPCM services from a Tier 1 supplier (Hatch, TWP, and DRA Minerals—though only one project has used the Call Off under the GFA arrangement). Engaging Tier 1 construction contractors. However, no known construction contracts have been placed in the last year using the Construction Services call-off agreements developed under prior collaboration agreements. Instead, Company A continues to use the GCC contracts for construction services, even with Tier 1 contractors.
company B
Company B employs the NEC suite of contracts for capital procurement, covering construction, engineering, professional, and other services. The company has developed a set of secondary option clauses (Z-clauses) to address key areas such as liquidated damages, liability provisions, dispute resolution, and compliance with anti-bribery and corruption regulations. This approach ensures some alignment between Company B’s NEC contracts and broader Group procurement standards.
The project procurement team at Company B has extensive experience managing NEC contracts independently, due in part to historical gaps in legal support. Initially, legal guidance was provided by outside counsel, but more recently, the Legal Department has become involved to align Company B’s practices with the broader Group framework.
Recommendation
Past efforts to standardize capital procurement contract templates have consistently failed. Each BU has developed its own contracts based on specific processes and risk considerations. The procurement teams are well-versed in these contracts and can effectively manage them within project timelines and budget constraints. Introducing a new set of contract templates would present both negotiation and execution risks and require significant investment in development and training. Therefore, standardization may not yield tangible benefits.
As an alternative, we recommend:
As an alternative, we recommend:
Developing Best Practice Guidelines
A set of industry best practices should be established, detailing the key elements required in a capital procurement contract and outlining the preferred Group positions.
Contract Review Against Guidelines
Existing capital procurement contract templates for each BU should be assessed against the guidelines to ensure alignment with Group preferences.
Approval and Implementation
Once reviewed and approved, the BUs should continue using their templates without further legal review unless:
Deviations from standard terms are negotiated.
The contract has particular complexities or is business-critical.
Identifying Legal Review Triggers
The best practice guidelines should highlight instances where legal review is necessary.
Rather than enforcing a one-size-fits-all contract template, aligning existing contract structures with best practice guidelines presents a more feasible and efficient solution. This approach ensures operational continuity while addressing key procurement risks and compliance requirements across all South African BUs.
